Gonthier & Anor v Orange Contract Scaffolding Ltd.

This appeal, from a decision of the 12^th September 2002 of Mr Recorder Thom sitting in the Cardiff County Court, concerns proprietary estoppel and deals, in particular, with the questions that arise when the estoppel is asserted as between prospective landlord and tenant but where the phrase “subject to contract” had been used and where it was argued, also, that the prospective tenant asserting the estoppel did not have the “clean hands” required of a claimant seeking the assistance of equity.

The class of proprietary estoppel that required to be examined at the trial was that which had origins not later than Lord Kingsdown’s dissenting judgment in Ramsden -v- Dyson (1866) LR 1 H.L. 129 at 170 where he said:-

“If a man, under a verbal agreement with a landlord for a certain interest in land, or what amounts to the same thing, under an expectation, created or encouraged by the landlord, that he shall have a certain interest, takes possession of such land, with the consent of the landlord, and upon the faith of such promise or expectation, with the knowledge of the landlord, and without objection by him, lays out money upon the land, a Court of equity will compel the landlord to give effect to such promise or expectation.”

In Willmott -v- Barber (1880) 15 Ch D 96 Fry J. described five elements which were, in his view, required to be shown if a person’s legal rights were to be overborne by such an estoppel. However, adoption of the five probanda in later cases led to a somewhat mechanistic approach such that, if, upon a minute construction of their terms, they were all established, then the estoppel followed and, if any of the five was not, there was no estoppel. Later still, in his seminal judgment in Taylor’s Fashions Ltd -v- Liverpool,Trustees Co. Ltd. [1982] 1 Q.B. 133 Oliver J., as he then was, after a full examination of the authorities, doubted whether all five probanda had invariably to be shown in every case – page 154 b – and concluded at page 154 f-155 c that the appropriate test was a broader one; there was no necessity for applying unalterable criteria regardless of the nature of each particular case but rather the proper inquiry was whether in all the circumstances of the case it was unconscionable for the person having the strict legal right to insist upon its exercise. That such an approach is the correct one has been repeatedly illustrated by the endorsement of Oliver J.’s approach in subsequent cases including Attorney-General of Hong Kong -v- Humphreys Estate and Another [1987] 1 A.C. 114 P.C. (to which I shall return) and Gillett -v- Holt [2001] 1 Ch 210 C.A. in which Robert Walker L.J. emphasised that proprietary estoppel was not to be divided into “watertight compartments” – page 225 – and that:-

“ …. The fundamental principle that equity is concerned to prevent unconscionable conduct permeates all the elements of the doctrine. In the end the Court must look at the matter in the round.”

What was to be conducted, he said, was a broad inquiry as to whether, in all the circumstances, what was being sought to be done by the person having the legal rights was unconscionable – page 232 d.

It has to be borne in mind, though, that in examining the conscience of a party and, in particular, of the defendant (or, as it is in the case before us, of the defendant to the counterclaim) it is not only subjective considerations that may be relevant. A defendant could not, for example, escape an estoppel by asserting, even credibly, that his personal subjective conscience was only weakly responsive to the stimuli which others would have recognised and that he had thus failed to detect anything unconscionable in his behaviour. Nor is the information which the Court, in the course of its inquiry, imputes to a person necessarily only that of which that person had actual personal knowledge; it would not assist a defendant, for example, to assert that he had no knowledge of information as to which he had deliberately shut his eyes to avoid its acquisition. Unconscionability for these purposes is thus not tested only by reference to the actual subjective state of mind or of information of the defendant concerned. With that in mind I turn to the facts.

Mr John Horrigan is the only Director of and, he has told us, the only shareholder in, the Respondent company, Orange Contract Scaffolding Ltd. (“OCS”). The prospective landlords, the Appellants Mr and Mrs Gonthier, (“the Gonthiers”) own a riverside business or commercial yard at Leckwith Bridge, Leckwith Road, Cardiff. On part of it they carried on and still carry on a business by way of their own company, Mobile Gas Ltd., but in October 2000 another part was occupied by Weddell Swift Ltd., who were expected soon to move out of possession, and a further part was vacant. There was a discussion in October 2000, probably on or about the 23^rd October, between Mr Gonthier and Mr Horrigan as to OCS taking a lease from the Gonthiers of the Weddell Swift and vacant parts, a lease which was also contemplated to confer on OCS an option to buy the freehold reversion to the part it was going to occupy. Mr Recorder Thom held that 6 items had been agreed at the meeting and that Mr Gonthier and Mr Horrigan shook hands. Mr Gonthier shortly afterwards wrote a letter to Mr Horrigan on 27^th October which it is as well to quote in full. The letter said:-

“Re: Site at Leckwith Bridge/GW and MM Gonthier

Further to our recent meeting concerning the above site, I write to confirm the following points as discussed:

(i)

Rental of two-storage compounds at above site.

(ii)

Agreed annual rental of £10,400, payable monthly in advance at £866.66, and one month’s advance rent, therefore first payment of £1733.32 will be due on or before 1^st January 2001. Standing Order mandate to be completed.

(iii)

Rental agreement for five years with an option to purchase at the end of the 1^st Year for £50,000 + all costs, option to be taken up by end of the 2^nd year. Lease to be drawn up by our solicitors.

(iv)

Rates to be paid directly to Finance Department of the VGCC.

(v)

Any additional fencing and hard-core requirements to be met by tenant.

(vi)

Two months rent-free for November and December 2000.

Should you wish to add or subtract to the above or discuss this matter further, please do not hesitate to contact us.”

The letter was signed by Mr Gonthier.

It is likely, given the terms of the letter of the 2^nd November, that Mr Horrigan had met the Solicitors in person, that the solicitor and client had discussed the matter of the lease and that Mr Horrigan had given the Solicitors instructions.

Mr Recorder Thom held, rightly in my view, that Mr Gonthier’s letter of the 27^th October did not constitute a binding agreement, by reason of section 2 of the Law of Property (Miscellaneous Provisions) Act 1989. But he held it was consistent with a firm agreement for the grant of a lease on certain terms. He could at least equally have held that it was consistent with the usual scheme under which parties’ respective solicitors move to exchange of lease and counterpart and where nothing is binding until that exchange takes place. In the absence of any preceding binding agreement there was, in my view, no apparent impediment to OCS’s Solicitors’ introduction of the heading “Subject to Contract” having thereafter its usual effect, to which I shall later refer.

OCS, let into possession, then began works at the site; it had not been warned that any work it did was at its own risk. But thereafter OCS carried out works with Mr Horrigan believing, so held the Learned Recorder, that he was improving what would be his own property. I shall return later to the cost of the works. The Gonthiers were held to have done nothing to discourage him from doing the works and in two particular respects – renewal of chain-link fencing and the laying of concrete – it was held that they gave permission for the work. To some extent chain-link fencing and the laying of hardcore – see item 6 of the letter of 27^th October – had been the subject of the initial informal agreement. The Learned Recorder held:-

“In these respects as well as in the original handshake agreement and the letter of the 27^th October they went beyond mere acquiescence and positively encouraged expenditure by the defendant which would enhance the value of their property, as must have been apparent to them.

As I have indicated, in my judgment Mr Horrigan’s decision to go ahead with those works is only explicable by a belief by him that he had an immediate binding right to an option to purchase the freehold.”

I interpolate that there was no finding as to whether OCS ever had the means or any expectation of acquiring the means needed to exercise the option described in Mr Gonthier’s letter nor as to whether the option was to be personal to OCS.

The Learned Recorder held that the heading of OCS’s solicitor’s letter – “subject to contract and subject to lease” – had not been discussed between Mr Horrigan and his solicitor (who did not give evidence). Mr Horrigan’s evidence was that the solicitor had simply been adopting a standard practice but there was no finding that Mr Horrigan had not known of that standard practice or had not known of the heading which the solicitor had put upon the letter. There was no finding that the solicitor had not been authorised to head the letter as he had done and it will be remembered that the heading was put on after the solicitor and client had met and had discussed whether Mr Horrigan wished to proceed further.

On the 15^th December 2000 Mr Gonthier’s solicitors sent a draft lease to OCS’s solicitor. The terms of the draft indicated, inter alia, that the tenant (OCS) need not improve the property, that it was not to make alterations to the property without consent in writing and that it was not to share occupation of the property. The lease was to be forfeited if the landlords (the Gonthiers) were entitled to and did re-enter any part, which they would be entitled to do if rent remained unpaid for 14 days or if other terms of the lease were not complied with. The concluding clauses of the draft provided:-

“15.

By an order of the Cardiff County Court dated the …..day of ……2000 under provisions 38 (4) of the Landlord and Tenant Act 1954 the parties hereto agree that the provisions of section 24-28 of that Act shall be excluded in relation to the lease hereby created.

16.

This lease has not been granted to implement an agreement for a lease.

17.

The tenant shall have the option to purchase the reversionary interest of the property on the terms set out in the Schedule hereto.

The Schedule

[Option to purchase reversion at a price of £50,000 exercisable at the end of the first year]

[Provisions to follow]”

Although the draft referred to a plan, none was annexed. Section 38 (4) of the 1954 Act contemplates an agreement between the persons who will be landlord and tenant excluding the applicability of parts of the Act and a joint application by them to Court for its sanction of that exclusion.

On the 1^st January 2001 OCS began paying the rent intended to be reserved by the lease and continued to do so until the end of June 2001.

On the 10^th January 2001 OCS’s solicitors responded to their receipt of the draft lease. They said, inter alia:-

“…… We need to hear from you with a copy plan, and details as regard the option to purchase to be contained in the Schedule as soon as possible so that we can give the matter further consideration and advance it. Our client is a little concerned as he has been allowed access to the premises and has expended substantial sums thereat. Following our Mr Eveleigh’s telephone conversation with your Mr Jones yesterday evening we duly reported to our client who has subsequently we believe spoken directly to Mr Gonthier. Our client is concerned about the position as regards the freehold reversion, and the agreement relating thereto and requires, as per the original agreement between our respective clients, the said option be contained in the lease and perhaps you could advise us if you anticipate any ongoing difficulties in this regard.”

Neither Mr Eveleigh or Mr Jones is recorded as having given oral evidence. Mr Recorder Thom declined to hold that by this date the Gonthiers were already refusing to include an option but the letter is consistent only with some difficulties or concerns as to the option having emerged. However, by the 18^th April 2001 it was quite plain that the Gonthiers no longer proposed that the lease should contain an option. On that date their solicitors wrote to OCS’s solicitors saying:-

“We understand that our respective clients have discussed this matter direct.

In any event our client has confirmed that the lease will not contain an option to purchase the freehold.

To move this matter forward, we enclose a revised draft lease (essentially a “tidied up” version of the previous lease but excluding reference to an option) together with a plan. Perhaps you would kindly telephone the writer when convenient to discuss this matter.”

The revised draft did indeed make no provision for an option but clauses 15 and 16 of the earlier draft - the clauses referring to an intended order of the Cardiff County Court to precede the granting of the lease and the recital that the lease had not been granted to implement an agreement for a lease - remained in the draft.

As I mentioned, OCS ceased paying the “rent” at the beginning of July 2001 and on the 19^th July the Gonthiers’ solicitor wrote to OCS’s solicitors saying:-

“The lease has not been completed nor has your client paid the outstanding rent. This letter constitutes notice to your client on behalf of ours of termination of your client’s tenancy-at-will but without prejudice to any accrued claim for outstanding rent/re-instatement of alteration or damage. Please confirm whether or not you are happy with the service of this notice upon yourselves rather than upon your client direct.”

On the 23^rd July Mr Horrigan wrote to Mr Gonthier saying:-

“I refer to your letter dated the 27^th October 2000 and bring to your attention that the lease agreement does not comply with the agreement that was met on that date (copy letter enclosed). I have been advised by our solicitors not to sign any lease at this time. During the months January to April 2001 it was common knowledge to you that various works on the above site were being carried out with your approval and these works would inevitably increase the value of the property which we were led to believe would be purchased by January 2003 (a valuation of works can be provided at a later date). I must point out that these works were carried out on the strength of your letter dated 27^th October 2000. I also bring to your attention that the rental agreement made on the 27^th October 2000 of £10,400 p.a. was based on the premises being fully constructive [sic] to its present state. ……..”

Mr Horrigan said in his letter that he had no alternative but to cancel the payment of the rent and to engage his solicitor to require the Gonthiers to reimburse his company “for all major refurbishment you happily agreed to and on the strength of your letter 27^th October 2000 us carrying out the works to make a suitable working ground for Orange Contract Scaffolding”. He asked that the Gonthiers should revert to “Our original agreement of the 27^th October 2000” thereby giving him, he said, a purchase date of the 1^st January 2003 at a cost of £50,000.

It seems that the Gonthiers went straight to their solicitors because on the same day, 23^rd July, that firm asserted that the Gonthiers had received the letter of the 23^rd July from Mr Horrigan, they adding:-

“The letter of the 27^th October 2000 has no legal effect and any works carried out by your client were carried out entirely at your client’s risk.”

They indicated that if OCS did not vacate immediately they were instructed to commence proceedings for possession.

On the 1^st August 2001 the Gonthiers pressed OCS for payment of rent and on the 13^th August OCS tendered a cheque for £1733.32 but the cheque was returned by the Gonthiers on the 14^th August with the message that OCS’s tenancy-at-will had been terminated and that possession proceedings would ensue.

On the 24^th August OCS, having by this stage gone to new solicitors, invited the Gonthiers’ solicitors to say “On an entirely without prejudice and subject to contract basis”, whether the Gonthiers would be prepared enter into a lease and, if so, what its terms would be. They continued:-

“We are currently advising our client as to what remedy it may have against yours in view of the fact that our client has expended a considerable amount of money on the property in improvements in reliance on representations made by your clients, confirmed in their letter to our clients of the 27^th October.”

However, the Gonthiers continued to insist that OCS no longer had any right to occupy the premises and on a date which is not disclosed but which was before the 12^th November 2001 the Gonthiers commenced a claim for possession of the premises.

By its amended defence OCS asserted that there had been an agreement evidenced in writing as to the grant of a lease with an option and that “In reliance upon the express agreement of the claimant to grant the said lease and thereafter execute the conveyance of the property” OCS had occupied the premises and, to the claimant’s knowledge had, “pursuant to the agreement between them, spent considerable sums in the improvement of the same”. By its amended counterclaim incorporating that allegation, OCS in effect sought, amongst other relief, the grant of the lease or restitution in respect of the amount it had spent.

There were interlocutory hearings, a good deal of correspondence about inadequate disclosure and a number of complaints raised by the Gonthiers in relation to planning and other matters relating to what was being done by OCS on the site. On the 10^th April 2002 His Honour Judge Weeks Q.C. made an order that included that OCS was to pay interim rent of £150 per week from the 1^st July 2001, that such rent for the period down to and including the 30^th April 2002 was to be paid by 4.0 p.m. on that day and that in default the Gonthiers would be entitled to possession forthwith. OCS did not pay and went out of occupation on the 30^th April 2002. Presumably the Gonthiers re-entered and accordingly their claim for possession in the proceedings became redundant but they continued to press for arrears of rent.

By his order of the 12^th September 2002 Mr Recorder Thom awarded the Gonthiers £7,795.26 as arrears of rent and £463.02 for interest, with provision for further interest until payment. There is no cross-appeal from OCS as to that. On OCS’s claims, the Learned Recorder awarded OCS £19,500 in respect of its expenditure on the premises and interest of £576.99 with, again, provision for interest until payment. The award in OCS’s favour was charged upon the property. Permission to appeal was refused but was granted by Hale L.J..

Although, shortly before the hearing before the Learned Recorder, OCS had been acting by solicitors, it was not professionally represented at that hearing but Mr Horrigan was heard below on OCS’s behalf. So also as to the hearing before us; although solicitors (a different firm) had acted for OCS until very shortly before the hearing, again it was Mr Horrigan alone who spoke for it before us. We were told that OCS is no longer actively trading.

Mr Sharples who appeared for the Gonthiers both below and in this Court raises, within the leave given by Hale L.J., two broad subjects by way of appeal; they can be described as “clean hands” and “subject to contract” respectively.

OCS’s case below, as I have said, was that in reliance on the Gonthiers’ agreement to grant a lease with an option whereunder it might acquire the reversion, it had spent “considerable sums” on the improvement of the premises. In his witness statement of the 3^rd December 2001 Mr Horrigan gave details of the money spent in improving the yard. In another witness statement, of the 2^nd April 2002, Mr Horrigan said:-

“The total value of the improvement works, carried out on site, for which I have invoices and/or evidence of cash payments is around £55,000. Details, being receipts, invoices and cheque stubs and bank statements, have been disclosed in these proceedings.”

The total claimed in OCS’s amended defence and counterclaim was “approximately £50,000”. A schedule was attached to the pleading describing the works done and the money spent. Mr Horrigan’s “Statement of Truth” signed by him as Director of OCS on the 1^st May 2002 verified that claim.

The schedule gave details of expenditure of £51,846.33. Thus, for example::

The Gonthiers argued at the trial that OCS was relying on evidence adduced by it that it must have known was not genuine and that it was thus coming to equity without “clean hands”. It adduced evidence from three suppliers. Mr Brimble of A & B Fencing gave evidence that the document which had been produced by OCS as evidence of receipt by or payment to A & B Fencing was not a document that had been produced by Mr Brimble or by A & B Fencing. He gave evidence that the handwriting on the document was not his own and was not recognised by him. He also gave evidence, which the Learned Recorder did not accept, that A & B Fencing had not been paid but his evidence as to the document which had been produced to the Court and the Gonthiers by OCS not being what it purported to be was not, it seems, contradicted.

Mr Paul Phillips gave evidence as to two invoices which had been produced by OCS as if from his firms, Phillips Plant Hire and Phillips Construction. OCS had produced them as evidence of work done and money spent. Of the two invoices, said Mr Phillips, one, that for £2,045, was, he said, a fabrication using a letter heading – Phillips Construction – which had not been used for over 5 years. The writing on the invoice, purporting to indicate that it had been paid, was not in any event his writing. The allegation as to the document being a fabrication seems not to have been countered by any evidence on OCS’s part.

As for Shephard Construction, in cross-examination Mr Horrigan accepted that not £9,693 but only £7,500 had been paid. He claimed a mistake had been made but it was not one that was disclosed until the cross-examination itself. It was in relation to VAT in this area that the Learned Recorder advised Mr Horrigan that he had a right to refuse to answer questions where the answers might incriminate him. With respect to any Shephard indebtedness the following exchange took place during Mr Horrigan’s cross-examination:-

“The Recorder: That is as well as it may be, Mr Horrigan, but you did know, did you not, beyond any doubt that you had not paid £9,693.75 and you had not paid £8,250 either, you had paid £7,500 in cash?

A. That’s correct your Honour.

Q. So the correct answer to Mr Sharples’ question that you knew it was false is that you did? It was inaccurate and misleading?

A.

Yes Sir.”

A little later in cross-examination Mr Horrigan accepted that he had asked for the impugned invoice for the purpose of the litigation that he thought was coming. He accepted also that the description of the work done by the contractor was inaccurate and misleading.

Dealing with such facts as gave rise to the argument that OCS came to Court without clean hands, the Learned Recorder divided his comments, in effect, into those relating to the avoidance of VAT and those, more generally, dealing with exaggeration by OCS of the money that had been laid out on the site.

As to the former, the Learned Recorder said this in his judgment:-

“4.

The position of Mr Horrigan

The evidence in relation to the nature and cost of the defendant’s works to the premises has caused some severe difficulties to Mr Horrigan;

(a)

On his own admission in cross-examination he had entered into an agreement with at least two of his contractors, Mr Brimble at A & B Fencing Systems and Shephard Construction Ltd., to pay them cash so as to avoid paying VAT;

(b)

Again on his own admission, he had procured from Shephard Construction Ltd. a VAT invoice …… in the sum of £8,250 plus VAT making £9,693.75 in all. This was produced on disclosure as a genuine invoice and the sum of £8,250 was claimed in the counterclaim …. however the amount actually paid in cash was only £7,500;

(c)

In addition, the description of work on that invoice was materially inaccurate in respects explored with Mr Horrigan and conceded by him in cross-examination. Those descriptions had been corrected by Mr Horrigan’s witness statement of the 2^nd April 2002 …. but the expenditure was there described as £10,500. The amount of £7,500 only emerged in cross-examination. Mr Sharples for the claimants relies on these difficulties not only to reduce any counterclaim which the defendants may have but also as barring the defendants entirely from relief.”

A little later the Learned Recorder says:-

“I have therefore had to remind myself throughout that Mr Horrigan is a witness whose honesty is, on his own admission, impeached and his unsupported evidence requires very careful consideration before it can be accepted.”

As to exaggeration of the cost of the work done, the Learned Recorder assessed the proper costs of concreting at £10,000; OCS had claimed £17,833. As for Shephard Construction, the claims initially, in the course of cross-examination, reduced to £7,500 were later in fact assessed by the Learned Recorder at only £3,500. The A & B Fencing claim was reduced and a claim for water supply was reduced to zero as the Judge held that it had not been paid-for at all. All in all, OCS’s claim for over £50,000 expended was held to be an expenditure of only £19,500.

There was thus abundant material for an argument from the Gonthiers that OCS’s hands were far from clean. OCS, by Mr Horrigan, had asserted, right down to the hearing itself, a claim for an equity in its favour, an equity which depended on expenditure by it, but had very substantially exaggerated that expenditure. It had done so in ways which it had had to accept were not only inaccurate but misleading, which, at points, had the appearance of an intended fraud on the Customs and Excise and which, at other points, had depended on documents as to which there was evidence, not said by the Learned Recorder to have been unreliable or to be disregarded, that they had been fabricated. In a passage I shall come on to, the Learned Recorder accepted that OCS had “concocted” documents. In the circumstances it is hardly surprising that the Learned Recorder said that he found this aspect of the case deeply troubling. The Gonthiers’ Counsel cited to him Willis -v- Willis [1986] 1 EGLR 62 C.A..

In Willis supra the appellants had resisted the respondents’ claim for possession of a flat on the ground of an alleged promissory estoppel. The respondents, they claimed, had more than once said that the appellants could live in the premises rent free for as long as they needed. In reliance on that, claimed the appellants, they had expended money on the premises from time to time and in considerable amounts. In the course of resisting the claim for possession the appellants had been asked for details of what they had spent on the premises and upon what they had spent it. The details they disclosed included that some £1339.90 had been spent in the detailed ways they then described. When asked for particulars the appellants had relied on a letter from a Mr Robins. The letter was handed by them to the appellants’ solicitor and was then used as the answer to the request by the respondents for particulars. Mr Robins’ letter explained that he had carried out works at the premises and that, whilst he no longer had complete details to hand, he could confirm from ledgers the appellants’ claims as to the description of the works that he had done as they had been specified in the appellants’ defence and counterclaim. Of Mr Robins’ letter the Court of Appeal said that it was a complete fiction. Mr Robins had not done any work. He had no ledgers and he had not been paid any money. The appellants were man and wife and the appellant to whom the letter had been addressed knew that it was wholly false. Parker L.J., giving the first judgment, said that the inference was inescapable that if the falsity of the Robins’ letter had not been discovered by the respondents’ solicitors it would have been relied upon throughout the proceedings. He said at page 63 l:-

“I find it difficult to see how there could be any more serious conduct than that. When a party comes to the Court and seeks to obtain from it equitable relief, it is accepted, as I have said, that he must come with clean hands. I accept also, as was submitted on behalf of the appellants, that not every item of misconduct can possibly be sufficient to deprive a party who seeks equity from being granted the relief he seeks. Some misconduct may be trivial. But when a party acts as these parties have done – and Joanna Willis must be regarded as having been concerned in this, albeit indirectly, in as much as the document was put forward on behalf of both the appellants – it seems to be impossible for this Court to do other than to take the most serious view of it and to decline to grant equitable relief even if, to which I say nothing because it does not arise on the view I take of this case, they would otherwise have been so entitled.”

Sir John Donaldson M.R. said at page 63 m:-

“The conduct of the appellants which has been disclosed in this case was such that no Court could, in my judgment, possibly grant equitable relief.”

Parker L.J. had earlier said, of the learned Assistant Recorder’s conclusion in that case that the Robins’ letter had been wholly fraudulent and that the appellants’ defence was rejected, that:-

“He was, in my judgment, entirely right so to do, and I would be content to dismiss the appeal on that ground alone. When a person seeks the aid of the Court to obtain the Court’s assistance, via the principles of equity, to override somebody’s strict legal rights, it is clearly a case for the application of the maxim, as indeed is accepted by the appellants, “that he who comes to equity must come with clean hands”.”

Whilst consideration of “clean hands” is inescapably a matter that is sensitive to the varying facts of the particular case, unless some compelling distinguishing feature emerges such as to have enabled Mr Recorder Thom to have put Willis to one side, it is difficult to see how OCS’s very considerable shortcomings failed to debar it from the equitable relief which it claimed.

As to that there were a number of features which, in the Learned Recorder’s view, enabled him not to bar the Respondent's claim.

Firstly, he said:-

“So far as concocted documents are concerned, in my judgment these were concocted in order to justify a claim for expenditure which had genuinely in broad terms been incurred but which could not be clearly established partly because of a reluctance of contractors such as Mr Brimble to admit that they had received cash.”

The Learned Recorder was plainly accepting that there had been documents (plural) produced by OCS but which had been “concocted”. But there cannot be any principle by which the fabrication of documents produced to the Court as part of a party’s case may be excused or treated as other than serious on the ground that the fabrication was done in order to portray “in broad terms” what the party believed to be the truth or what was the truth. A party unable to find any documentary support for the truth it wishes to assert can expect a very serious view to be taken of its conduct if, in order to suggest or support that truth, it fabricates documents. Still less can such conduct be excused where the documents do not portray but exaggerate the truth and where their falsity is hidden from view until the very course of the hearing.

Next the Learned Recorder referred to Singh -v- Singh [1985] Fam L.R. 97, but the circumstances of that case were far too remote to be such as might assist him. A husband, resisting his former wife’s claim under section 30 of the Law of Property Act against his brother, her brother-in-law, had for some time asserted in those proceedings, with a view to deceiving both his wife and the Court, that his brother, who held the fee of a house, did not hold any share beneficially for the husband but held entirely for himself, the brother. That position, if upheld, would have denied the wife any beneficial interest in the house. The husband then fell out with his brother and adjusted his stance in the related proceedings that were heard at the same time to assert instead that the brother held in part beneficially for him, the husband. Anthony Lincoln J. said that he had been disposed to refuse relief to the husband on the “clean hands” principle but had decided not to do so. What persuaded him not to do so was (i) that to do so would harm the former wife, who was not only innocent of the husband’s fraud but was its intended victim and who could recover only if the husband succeeded against his brother and (ii) that the husband had made a clean breast of the falsity of his assertions ahead of the hearings. Neither of those features had any reflection in the evidence before Mr Recorder Thom. Thus, although one may be entitled to some doubts as to the financial position of OCS, which is not for the moment trading, we are not told that any creditor of it would be materially prejudiced were OCS’s appeal not to succeed. There is thus nothing in the case before us to correspond to the need in Singh to protect the position of an innocent third party who otherwise would be unjustly denied any recovery. Nor, importantly, did Mr Horrigan confess to the attempt to deceive ahead of the hearing; on the contrary, as I have mentioned, it was only during cross-examination that in some respects the true facts emerged. In the circumstances Singh -v- Singh was not only no guide to the Learned Recorder but, if anything, suggested that the “clean hands” principle which Lincoln J. would have applied but for those two considerations should have operated to refuse relief to OCS.

Thirdly, Mr Recorder Thom concerned himself with the questions of whether refusing relief would be to impose a disproportionate penalty on OCS and whether reduction of its monetary claim for the expenditure it claimed to have laid out on the premises was “a sufficient punishment”. With respect, those were not appropriate questions; the question, as Parker L.J. emphasised in Willis supra at page 63 e-f, was not whether an equity had been lost by reason of bad conduct but whether, by reason of bad conduct, the equity had ever arisen.

In the circumstances I would hold that the Learned Recorder misdirected himself in law on the question of “clean hands” for the reasons I have given. If (as to which I am far from sure) Mr Recorder Thom was able to regard the matter as simply one of the exercise of a discretion, I would hold that, in the light of his misdirection, this Court is free to look afresh at “clean hands”. For my part I would hold, especially in the light of Willis supra, that Mr Horrigan’s hands were hopelessly muddied; his conduct on OCS’s part was in my judgment such as to deny equitable relief to the Respondent. I would allow the appeal on this ground alone but, as Mr Sharples and the Learned Recorder devoted attention also to the “Subject to Contract” issues, I will turn next to them.

In the context, in particular, of a prospective disposition of an estate or interest in land, the context in which the expression is most commonly found, the phrase “subject to contract” has the well-known effect that:-

“…. both parties remain free to withdraw from the arrangement without incurring any legal liability.”

see Megarry and Wade, The Law of Real Property, 6^th Edition 2000 page 645; Attorney-General of Hong Kong -v- Humphreys Estate (Queen’s Gardens) Ltd. [1987] supra. In the Attorney-General case there were other words surrounding “subject to contract” that “gave emphasis to the principle that an agreement which is “subject to contract” has no binding force” – page 121 – but there is, emphasis apart, no hint in the judgment of Lord Templeman that the phrase would not have had exactly the same effect even had “subject to contract” stood entirely alone. Moreover, once the phrase is introduced it has an enduring effect – Cohen -v- Nessdale Ltd. [1982] 2 All E.R.. 97 C.A. - where the Court of Appeal, adopting at page 103-4 the Court’s earlier acceptance in Sherbrooke -v- Dipple (1980) 41 P & CR 173 of a yet earlier proposition of Brightman J., approved the proposition that parties in a conveyancing context can get rid of the qualification “subject to contract” only if either they both expressly agree it should be expunged or if such an agreement is necessarily to be implied.

I add that so familiar is the use of the phrase “subject to contract” in the conveyancing context that its effect is, without proof, to be taken to be known to the parties – Regalian Properties plc -v- L.D.D.C. [1995] 1 WLR. 212 and 231; Edwin Shirley Productions Ltd. -v- Workspace Management Ltd. [2001] 2 EGLR 16 at 22 j-k. In Derby & Co. Ltd. -v- ITC Pension Trust Ltd. [1977] 2 All ER 890 at page 896, Oliver J., responding to a claim for an estoppel, said, in the course of rejecting that claim:-

“ ….. where parties negotiate on a basis “subject to contract” everybody knows there is a risk that, at the end of the day, either side may back out of negotiations, up to the point where leases are exchanged.”

The effect of the phrase can ordinarily thus be imputed to the parties to the dealings in which it is used. I shall return later to imputation.

If, then, the position is that OCS’s solicitors themselves brought about a situation in which both parties were free to withdraw from whatever arrangement had been come to on the 23^rd and 27^th October 2000, a very real difficulty is put in OCS’s way in its claim to have laid-out money on the premises in reliance upon its being granted a lease containing an option. How, it may be said, can OCS have relied upon there having been an obligation upon the Gonthiers of a kind which could objectively be seen to have been capable of being relied upon when OCS by its own Solicitor’s action (the heading to the letter of the 2^nd November 2000) had made whatever the obligation had been one from which the Gonthiers were free to resile? How can one rely upon the unreliable? Equally, it could be asked how it could be unconscionable for the Gonthiers to resile from an arrangement which the OCS side had itself made such as could be withdrawn from with impunity? On these questions we were referred, directly or by way of their citation in other cases, to a number of authorities which require to be examined.

First, although neither was cited directly to us or to the Judge, there were indirect references in such authorities as were put before us to two cases in which an equity leading to some form of proprietary estoppel or equity had been successfully asserted notwithstanding that the parties concerned had a relationship which had been qualified by the phrase “subject to contract”.

The first in time of the two was Salvation Army Trustee Co. Ltd. -v- West Yorkshire Metropolitan County Council (1980) 41 P & CR 179, per Woolf J.. The plaintiff there, threatened with a compulsory purchase of its “old” site owned by the Highway Authority on account of a proposed road widening by that Authority, left that site and went, with the knowledge of the Highway Authority, into possession of its “new” site, then also in the same ownership as the old one. It developed that new site by building premises on it at its own expense to replace the functions formerly served by the old site. Although, in form, a sale by way of compulsory purchase of one site (the old one) and a purchase of a second site (the new) the arrangements negotiated were in practice more nearly those of an exchange of one site for another, with a monetary difference to be paid – page 199. The plaintiff had introduced the phrase “subject to contract” into the dealings in January 1972 – page 186. But the position was then re-negotiated and in the course of the re- negotiations the Highway Authority headed a letter “without prejudice” on the 9^th November 1973 – page 186. Unusually, but perhaps as a hangover from the January dealings, before the Court the parties agreed, and the Court acted upon, the basis that the expression “without prejudice” could be regarded as equivalent to “subject to contract” – page 186. There was a complication on the facts in that, by way of a local government reorganisation, the road widening function passed to the defendant, which was not the authority that owned the new site. Whilst the negotiated proposals as to the new site were fully implemented without giving rise to difficulties, the arrangements as to the old site negotiated before the re-organisation never reached the level of binding contract once the re-organisation had changed the identity of the parties necessary to their being given effect. Putting aside the possible consequences, adverse to the plaintiff, of the local government re-organisation (difficulties which Woolf J. was able, in the event, to overcome) he held that the “irretrievably interwoven” dealings were such that the defendant could not lawfully withdraw from the proposal for compulsory purchase of the old site. But Woolf J. did nothing to license any general disregard of the effect of the phrase “subject to contract”; he appears to have accepted the concession of counsel for the claimant in that case that (pages 198-199):-

“….. In the case of a normal arrangement to sell where there is no contract it would be virtually impossible to rely on the principle of proprietary estoppel”

and, after referring to the unusual facts in that case, he added at page 199:-

“These are a combination of facts that are unlikely to recur frequently. I make this clear because I would not want my decision in this case to interfere with the normal conduct of negotiations “subject to contract” ……..”

The second of the two cases in which “subject to contract” had neither undone a defendant’s reliance nor sanctioned a withdrawal is Island Holdings Ltd. -v- Birchington Engineering Co. Ltd., an unreported decision of Goulding J. of the 7^th July 1981. The case has been available to us only by way of its citation in Banner Homes Group plc -v- Luff Developments Ltd. [2000] Ch. 372 C.A.. In his judgment in Banner Homes Chadwick L.J. makes reference at page 396 to Island Holdings supra as a case concerning two prospectively separate purchasers in which a later “subject to contract” arrangement between them had replaced their earlier concluded agreement as to how a property, if acquired, would be dealt with. In Island Holdings, effect was given by way of constructive trust, not to the “subject to contract” arrangement but simply to the notion that the two parties should be obliged to share – see Banner Homes at page 396 a-g. But Chadwick L.J. did not comment on the fact that dealings in Island Holdings had been “subject to contract” and the citation he included from Goulding J.’s judgment did not deal with the point.

It is notable, too, that, although Attorney-General of Hong Kong supra and the Salvation Army case supra were both cited to the Court of Appeal in Banner Homes, neither is mentioned in the judgment. The judgment in Banner Homes, because it had no need to do so, at no point tussles with the argument before us as to the alleged plain and enduring effect of the phrase “subject to contract”, nor with the consequential difficulty of appropriate reliance by a plaintiff who has by his own act made the arrangement one from which either side could withdraw with impunity. Nor did Banner Homes deal with any question as to the unconscionability of withdrawal on the part of he who seeks to withdraw where it is the person asserting the estoppel who has introduced the “subject to contract” qualification.

Needless to say also, in neither Island Holdings Ltd. in 1981 nor the Salvation Army case in 1980 could the Court have had the benefit of the citation which we have had of Attorney-General of Hong Kong [1981] supra and of subsequent cases. It is pointless to speculate whether they would have been decided as they were had Attorney-General of Hong Kong and the subsequent cases been available to Goulding J. and Woolf J. respectively, but conversely, it is clear that Attorney-General of Hong Kong was decided as it was despite the Salvation Army case having been cited to the Privy Council. Lord Templeman held at page 127 d-e that on the facts in Salvation Army it was irrelevant that the arrangement had been subject to contract.

Given the terms in which Woolf J. in Salvation Army sought to limit the extent to which its reasoning might be generally applicable, given the absence of any available explanation as to how “subject to contract” was raised in argument and dealt with in Island Holdings supra, and given, further, the treatment of the Salvation Army case in Attorney-General of Hong Kong, I would regard the two cases as insubstantial as bases for a claim that proprietary estoppel is readily available even where the “subject to contract” qualification is found. The most that emerges from the them is that, at any rate before Attorney-General of Hong Kong was reported in 1987, there were circumstances in relation to proprietary estoppel in which the difficulties arising out of the phrase “subject to contract” were not necessarily insurmountable. That leads me on to look at Attorney-General of Hong Kong and subsequent cases.

In Attorney-General of Hong Kong the Hong Kong Government in 1981 had made an agreement in principle that was marked “subject to contract” whereby the Government would acquire some flats owned the plaintiff Group of companies in return for the Government granting, inter alia, a lease to the Group of some Crown lands. The Government was allowed to and did take possession of the flats and spent money upon them and moved some civil servants into them, the Crown accordingly disposing of the premises where those civil servants had previously resided. On the other side of the bargain, the Government allowed the Group to enter the Crown land and to demolish buildings upon it. However, the requisite forms of documents were never executed and in 1984 the Group withdrew from negotiations and purported to determine the licence under which the Government had occupied the flats. In response, the Government asserted that the Group was estopped from requiring it to deliver up possession. In the High Court in Hong Kong the claim for proprietary estoppel failed and the Court of Appeal in Hong Kong dismissed the Government’s appeal. The Government’s appeal to the Judicial Committee of the Privy Council was also dismissed. Indeed, Counsel for the Group were not even called upon. The judgment of their Lordships was delivered by Lord Templeman who, apart from his examination of the principles of proprietary estoppel to which I have already referred, dealt especially with the significance of “subject to contract”. At page 124 h he pointed out that the Group had at no time indicated expressly or by implication that they had surrendered their right, the consequence of the introduction of “subject to contract”, to change their mind and to withdraw from the arrangement. Despite the extensive steps, including works done, visibly taken over a period of years by the Group (and the Government) as if the deal would be fully implemented, the Group was not regarded as having encouraged a belief or expectation on the part of the Government that the Group would not exercise that right to withdraw. At page 127-128 Lord Templeman said:-

“In the present case the Government acted in the hope that a voluntary agreement in principle expressly made “subject to contract” and therefore not binding would eventually be followed by the achievement of legal relationships in the form of grants and transfers of property. It is possible but unlikely that in circumstances at present unforeseeable a party to negotiations set out in a document expressed to be “subject to contract” would be able to satisfy the Court that the parties had subsequently agreed to convert the document into a contract or that some form of estoppel had arisen to prevent both parties from refusing to proceed with the transactions envisaged by the document. But in the present case the Government chose to begin and elected to continue on terms that either party might suffer a change of mind and withdraw.”

It is to be noted that it was the Government in that case that had first marked the deal as “subject to contract” and that (as in the present appeal) it was therefore the party who had introduced the ability in both sides to withdraw that was nonetheless asserting that withdrawal was not to be permitted. I think it to be implicit in Lord Templeman’s difficulty in foreseeing any circumstances in which the usual effect of “subject to contract” could be undone that he was endorsing that the test of unconscionability to which he had referred and which he was applying required not merely an examination of the subjective states of mind of each party; few things could be more foreseeable than that a lay party might assert that he had not known that the label had been used or had not known its effect.

Moving on to later authorities, the decision in Regalian Properties plc and Anor -v- London Docklands Development Corporation [1995] 1 WLR 212 per Rattee J. is adequately summarised in the head note that indicates the where negotiations intended to result in a contract had been entered into on express terms that each party was free to withdraw from the negotiations at any time, the costs of a party in preparing for the intended contract were incurred at its own risk and it was not entitled to recover them by way of restitution if for any reason no contract resulted. It was held that by the deliberate use of the words “subject to contract” in their usual sense, each party had accepted that if no contract was concluded any resultant loss should lie where it fell. The costs there referred to were not insignificant; they were of £3,736,840. The case against proprietary estoppel was there a very strong one in the sense that the plaintiff accepted that it knew that either party was free to walk away from the negotiations although confidently expecting that that would not happen. However, Rattee J., even without citation to him of Attorney-General of Hong Kong supra, concluded – page 231 b-c - as I have already mentioned, that where negotiations are subject to contract each party to such negotiations must be taken to know that pending the conclusion of a binding contract expenditure is incurred at risk in the sense that there would be no recompense if no contract were to result and that resultant loss should therefore lie where it fell.

In James -v- Evans [2000] 3 EGLR 1 C.A. negotiations for a tenancy had been conducted through solicitors under the protection of the “subject to contract” label. The prospective tenants had been let into possession and the tenants’ part of the proposed lease had been sent to the landlord’s solicitors, duly signed by those tenants. Then the landlord fell ill. The tenants had paid rent in advance. The landlord died. His personal representative served notice to quit. The County Court judge made an order for possession against the proposed tenants-to-be. The tenants appealed. The judgment of Wright J., with whom Dame Elizabeth Butler-Sloss P. and Thorpe L.J. agreed, included a reference to the passage at pages 127-128 in the decision in Attorney-General of Hong Kong which I have cited above. Wright J. pointed out that in that case Mr Evans, the party who was asserting the proprietary estoppel, had always been aware that the entire negotiation had been carried on “subject to contract” – at page 4 e.

In Edwin Shirley Productions Ltd. -v- Workspace Management Ltd. and Others [2001] 2 EGLR 16 Lawrence Collins J. dealt with another case where negotiations had been “subject to contract”. After citing Gillett -v- Holt [2000] 3 WLR 815 C.A. he said, at page 21 h:-

“For present purposes, the importance of the decision is that it confirms that the promise or assurance relied upon by the claimant need not be binding or irrevocable(for otherwise there would be no need for an estoppel doctrine), that the element of detriment is not a narrow or technical concept, and the requirement of detriment must be approached as part of a broad inquiry as to whether repudiation of an assurance is, or is not, unconscionable in all the circumstances.”

He pointed out that the fact that not all of the correspondence had been headed “subject to contract” did not prevent that qualification continuing to apply and he referred to Cohen –v- Nessdale supra and to Attorney-General of Hong Kong supra. He held that there had been no proof of any such circumstances, which Lord Templeman had said in Attorney-General of Hong Kong would in any event be unlikely and unforeseeable, that would allow reliance on an estoppel to overcome the “subject to contract” character of negotiations. He added, at page 22 j-k (with my emphasis):-

“The rationale is quite simply that proprietary estoppel and constructive trust require: (a) detrimental reliance; and (b) unconscionable conduct. Since the parties mustbetakentoknow that a party who has agreed terms subject to contract is free to withdraw, there can be no question of reliance (particularly by a commercial enterprise involved in property transactions) or of unconscionable conduct.”

In London & Regional Investments Ltd. -v- TBI plc and Another [2002] EWCA Civ 355 Court of Appeal the Court dealt with a joint venture arrangement that was marked “subject to contract” and Mummery L.J., with whom Dyson L.J. and Douglas Brown J. agreed, held that the Deputy Judge had been right to hold that claims in constructive trust and for an estoppel in that case had no real prospect of success. He did so even though Island Holdings supra was cited to the Court. He, too, relied on the passage in Attorney-General of Hong Kong cited above as to the improbability of a party to negotiations expressed to be subject to a contract being able to satisfy a Court that some form of estoppel had arisen such as to prevent either side from withdrawing from the transaction.

These cases in and after 1987 represent a considerable impediment in the way of any such claim succeeding where the qualification applies. It is with that in mind that I return to the judgment of the Learned Recorder to see how he dealt with the fact that OCS’s own solicitors, in their first communication in the matter with the Gonthiers’ solicitors, had marked their letter “subject to contract and subject to lease”.

Next the Learned Recorder held that the phrase had had no impact on Mr Horrigan’s state of mind. It is to be noted that there was no finding that he did not know the meaning of the phrase nor that he did not know that the phrase had been used by his solicitors or what its usual effect was. Indeed, there was evidence of Mr Horrigan having bought and sold and negotiated properties a number of times and of his knowing that the “subject to contract” qualification was frequently added. In the conveyancing context, as I have already touched upon, it is both necessary and common (absent a proven want of authority) to identify the solicitor’s dealings with his client. That the Learned Recorder held the phrase had had no effect on Mr Horrigan’s state of mind does not of itself suffice to escape the phrase’s consequence. Were some such evidence alone to suffice to escape the imputation of the effect of the phrase then the phrase would be deprived of its useful, indeed crucial, effect in facilitating further negotiations down to the point where both sides wish to be bound.

The Learned Recorder, in my judgment, was at fault in not looking beyond the subjective actual state of mind of the parties themselves and in not taking into account that which, for the relevant purposes, might, at first sight, be imputed to them.

Next Mr Recorder Thom says:-

“Further, it is one thing for a solicitor conducting a negotiation to protect the correspondence passing between the solicitors from creating a contract but a very different thing to hold that the mere use of the label unravelled a prior binding agreement.”

There was, however, no prior binding agreement. Had there been one recourse to estoppel would have been unnecessary. It was because there was none that OCS had had to assert estoppel.

Next the Learned Recorder says:-

“The isolated use of the label in the letter of the 2^nd November 2000 does not, in my judgment, undermine the prior assurance in the way that an express agreement that the claimants were entitled to withdraw from the transaction clearly would have.”

It may be accepted that what would have gone without saying might have gone even better said but the fact that the label was used only in one instance and hence was an “isolated use” does not weaken its force, given that the fact that once it is used by either side it persists in relation to both sides until the effect is expressly undone or is undone by necessary implication as indicated in Sherbrooke -v- Dipple supra.

For my part, I would not regard the Learned Recorder’s four expressed reasons given for OCS escaping the ordinary consequences of the phrase “subject to contract” as sufficing to allow them to be escaped. In the circumstance that OCS by its solicitors had branded the dealing as one from which either side could withdraw, it was, supposing that the effect of “subject to contract” was to be imputed to each side, one from which the Gonthiers had a legal right to withdraw with impunity. But, beyond the four reasons given by Mr Recorder Thom for his conclusion, there was another route to that conclusion that arises from an authority that was put in front of him, Gillett -v- Holt supra.

That case dealt with the situation in which the defendant landowner’s legal right (in that case, to give his land by will to whoever he chose, irrespective of earlier unbinding indications that he would give it to the claimant) was undone by reason of the landowner’s own earlier repeated assurances that such right would, in effect, not be exercised and that, accordingly, the assurances that the claimant would get that land would be honoured. It is easy to see that to hold a defendant to his own clear and repeated verbal assurances is easier to do than, as would be the corresponding task in the case before us, to hold him to the consequence, to be imputed to him, of his observation of the claimant carrying out extensive works to the site and of his failure to comment to the claimant that they were being done at risk of the transaction coming to nought. In Gillett supra, Robert Walker L.J., with whom Waller and Beldam L.J.J. agreed, accepted that, in the absence of a specific promise to the contrary, the revocability of a representation by a living person as to the content of his will was in general to be imputed to parties – page 228 c. Even so, and despite Mr Gillett, the party asserting the estoppel, well understanding that the assurances given to him by Mr Holt had been revocable – page 227 h – the estoppel succeeded. The assurances given had been completely unambiguous and had been repeated over a long period – page 228 c-d – and were thus such that they could and were held to be capable of being relied upon and were in fact relied upon. It had thus become unconscionable for Mr Holt to revoke them. That which, by way of ordinary imputation, could not be relied upon was successfully relied on and the fact that Mr Holt might have thought (or might, by way of imputation to him of the ordinary consequences of revocability, be taken to have thought), namely that he could revoke his assurances at will, did not, on the strong facts proved, deny irrevocable effect to the assurances given.

Gillett thus suggests that where the facts are strong enough a right to revoke an unbinding assurance can be lost even where the recipient of the assurance accepts that he has actual knowledge of its revocability; a fortiori the case must suggest that a right to withdraw can be lost where the person asserting the estoppel has no clear picture of the intrinsic initial revocability of that upon which he relies. Unless there is some principle by reason of which, in relation to its effect on the parties and the consciences of either of them, “subject to contract” revocability is invariably to be treated differently to the revocability of wills during a testator’s lifetime, I see Gillett as opening up a possibility which Attorney-General of Hong Kong in the Privy Council had seemed to deny. The possibility, after Gillett, at any rate where a very strong case can be made on the facts as to the obviousness and duration of reliance upon a “subject to contract” dealing nonetheless being implemented, is that notwithstanding the Privy Council case, the right to withdraw from the dealing may be lost, as the earlier Salvation Army and Island Holdings cases had suggested could be the case..

However, OCS had no professional representative below and, through no fault of the Learned Recorder, he was not asked to consider the possibility I have mentioned as an alternative to the largely subjective considerations upon which he relied to escape the ordinary consequences of a “subject to contract” dealing and which, for the reasons I have mentioned, I would not see as sufficient to enable the escape to take place. The Learned Recorder held that Mr Horrigan believed that he had a legally binding agreement, that he was not warned that he did works at his own risk, that the Gonthiers were clearly aware of the general nature of the works being undertaken and that not only did they not discourage the doing of the works but in some respects positively encouraged their doing. He held that Mr Horrigan believed he was improving what would be his own property. Given all that, it is at least possible, as I see it, that the Learned Recorder might have held that the tacit assurances springing from OCS’s activity and the Gonthiers’ reaction or failure to react to it were of such strength that, like the clear, repeated and unambiguous assurances in Gillett, they should properly overcome not only the otherwise usual imputation of an awareness of revocability but also the usual effect of that awareness upon a claim for estoppel.

As, for my part, I would allow the appeal on the “clean hands” ground, I think it best to leave the tension between the Attorney-General of Hong Kong and Gillett to be resolved in a case where it has to be and so I would say no more on the “subject to contract” ground than that I am not at all sure that the Learned Recorder’s conclusion was not such that it could have been reached upon grounds other than those expressed grounds of his which I have described as inadequate.

A subsidiary point I should mention is this: during the hearing of the appeal the possibility of a further difficulty in OCS’s position was touched upon. OCS had asserted that it had laid out money as it had done in the belief that it had the right to and would acquire a lease and an option within the lease. But, unlike assurances of the kind “One day this will be yours” or “You can live here as long as you wish”, where nothing further is required from the person who is given such assurance, it is at least arguable that an assurance as to the grant of a lease supposes a state of things in which the prospective tenant not unreasonably could be expected continuously to perform and observe the terms of the prospective lease and to recognise that his occupation and any grant to him would be at risk if he did not. OCS did not punctually pay rent; it was given a notice of termination of tenancy by the Gonthiers. OCS did not obey His Honour Judge Weeks’ order that arrears of interim rent should be paid by a specified date and it went out of possession. At least arguably the grant, an assurance as to which OCS was asserting at the trial, was the grant of a tenancy which, it could be said, had already been forfeited by then. It was arguable that the option was as forfeit as the lease of which it was contemplated to be part. Against that, such expenditure as OCS had laid out upon the land had occurred well before any arguable forfeiture. Argument in this area would have required findings below as to why it was that the terms of the putative lease were not honoured. Nor, for example, were there findings as to the effect of the fact that no written consents (of the kind required by the draft lease if alterations were to be made to the property) had been either requested or granted. Although Mr Sharples wished to pursue argument in this area, for my part, especially in the light of OCS having no professionally qualified representation before us, I would not think it right to entertain it. I thus say nothing on the point save that I would not wish to be thought to be ruling in any way on any such argument.

A second subsidiary point is this: in the course of argument Mr Sharples asked for leave to add a ground of appeal that had not been specified earlier and which he then formulated in writing. However, as I would be content to allow the appeal on one of the grounds that had been raised in the existing Notice of Appeal and as to which Hale L.J. had given leave, I would be opposed to the granting of leave to the Gonthiers to add to their grounds.

Reverting, now, to the main subject before this Court, for the reasons I have given I would allow the appeal and set aside both the award of £19,500 and interest in OCS’s favour and the declaration that that award should be charged upon the Gonthiers’ property. Subject to any further application, I would also lift any stay of the Gonthiers’ enforcement of the order in their favour for payment by OCS of arrears of rent and interest.