GREEN HOUSE PROPERTY AGENCY v. YU MA KWAI AND OTHERS

HCA 10345/97

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 10345 OF 1997

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J U D G M E N T

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1. This is the trial of a preliminary issue concerning the meaning of a clause of an agreement entered into between the Plaintiff and the Defendants.

Facts

2. The Defendants are the registered owners of the property known as Demarcation District 239, Lot 61, Remaining Portion, Boon Kin Village, Sai Kung, New Territories, Hong Kong ("the Property"). By a written agreement dated 16th May 1993 ("the Agreement") made by the Plaintiff and the Defendants, it was agreed that the parties would jointly redevelop the Property into two blocks of three-storey buildings.

The clauses

3. The Agreement provided :

(1) All the redevelopment costs would be borne by the Plaintiff (Clause 2).

(2) After the Government has granted the approval for redevelopment, and after the commencement of work paper was obtained, the Plaintiff has to complete the redevelopment work within one year (not including the time of obtaining the Government Certificate of Satisfaction) (Clause 3). (emphasis added)

The Clause in Chinese is as follows :

"政府之重建文件批出，得到開工紙起計，乙方必須在一年內將整個建築完成。（不包括等批政府滿意紙時間）。"

(3) If approval for redeveloping the Property could not be obtained from the District Lands Office within three years, the redevelopment agreement would be cancelled automatically and neither party would have any right to claim against the other (Clause 4).

(4) After the completion of the redevelopment, the Plaintiff would be allocated the 3rd floor of each of the buildings together with the respective roofs, totalling two units (Clause 5B).

Buildings Ordinance (Application to the New Territories)

4. The redevelopment comes within the provisions of the Buildings Ordinance (Application to the New Territories), Cap.121 ("BO(ANT)". Under the BO(ANT), the Director of Lands, through the respective District Lands Office ("DLO") may issue Certificate of Exemption to exempt the building works, site formation works and drainage works of the redevelopment from the provisions of the Buildings Ordinance ("the Ordinance"). There are three separate Certificates of Exemption that the DLO may issue for the redevelopment. They are :

(1) Certificate of Exemption in respect of building works;

(2) Certificate of Exemption in respect of site formation works; and

(3) Certificate of Exemption in respect of drainage works.

If all three certificates are issued by the DLO, then the owner of the land can commence the construction work provided that the house to be built complies with the statutory requirements on floor area, height and the number of storeys. There is no need to go through the statutory procedure for obtaining approval from the Buildings Department pursuant to the Ordinance prior to the commencement of the construction work.

Cases where Buildings Department's consent is still required

5. Since an old retaining structure higher than 1.5m existed in the vicinity of the Property, strengthening works were required to stabilize the old retaining structure. This is a usual occurrence in areas like Tai Po and Sai Kung where most sites are on sloping grounds. Pursuant to a Practice Note for Authorized Persons and Registered Structural Engineers, No.147, issued by the Buildings Department, the DLO would not issue the Certificate of Exemption for site formation and drainage works in such a case. This means that the approval by the Buildings Department is required for the carrying out of site formation works and drainage works. What is not necessary is the approval by the Buildings Department of the work relating to the house structure from the ground floor to the roof.

Certificate of Exemption for building works

6. In this case, the Defendants applied to the DLO for permission to redevelop the Property on 21st March 1994. The DLO granted the approval on 26th April 1996 and issued the Certificate of Exemption for building works which is stated to be exclusive of site formation and drainage works.

Consent by Buildings Department on site formation works

7. On 19th September 1995, the Plaintiff applied to the Building Authority for, among other things, approval of the site formation plan. On 22nd December 1995, the Buildings Department approved the site formation plan. On 11th March 1996, the Plaintiff applied to the Buildings Department for consent to carry out the site formation works. The Buildings Department granted its consent on 17th May 1996. In the consent, it reminded the Plaintiff that for works to be carried out outside the boundary of the Property, consent from the DLO or adjoining owners must be obtained prior to the commencement of such work.

Consent by DLO to carry out site formation works on Government Land

8. As part of the site formation works was required to be carried out on Government land adjoining the Property, on 1st July 1996, the Plaintiff applied to the DLO for permission to carry out such works on Government land. The approval was given by the DLO on 28th October 1996.

Repossession of the Land by the Defendants

9. On 11th June 1997, the Defendants' solicitors wrote to the Plaintiff alleging that the Plaintiff had repudiated the Agreement by failing to complete the work within one year from 17th May 1996 which was the day on which consent to the commencement of the site formation works was granted by the Buildings Department. The Property was repossessed by the Defendants on the same day.

The Plaintiff's claim

10. The Plaintiff seeks specific performance of the Agreement.

The Questions

11. The questions that I have to determine in this trial of preliminary issue are as follows :

(1) On the true and proper construction of the Agreement, what is meant by the term "certificate to commence work" (開工紙) in Clause 3?

(2) Further or as an alternative of (1), whether, on the true and proper construction of the Agreement, the term "certificate to commence work" (開工紙) meant or was intended to mean :

(i) the relevant DLO's approval and/or consent to commence work on the Property; and

(ii) if and when it became necessary to commence and carry out work on Government land adjacent to the Property, the relevant DLO's approval and/or consent to commence work on such Government land?

(3) On the facts as pleaded by the parties and as proved at the trial of preliminary issue, when did the one-year period in Clause 3 of the Agreement start to run?

The Plaintiff's case

12. The Plaintiff claims that the one-year period under Clause 3 did not begin on 17th May 1996. Instead, it only started to run from 28th October 1996 when the DLO granted permission for site formation works to be carried out on the adjoining Government land. Alternatively, the one-year period commenced to run on 10th September 1996 when the Buildings Department granted consent to carrying out site formation amendment works. The Plaintiff had submitted an amended site formation plan to the Buildings Department on 5th July 1996.

The Defendants' case

13. The Defendants argued that time commenced to run from 17th May 1996.

Construction of document

14. The principles in construing a document are as follows :

1. The object of construing the document is to discover the intention of the contracting parties (Chitty on Contracts, Vol. 1, 28th Ed., para.12-42).

2. The task is approached objectively - "the meaning which the document would convey to a reasonable man having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract" ... The court will look at all the circumstances surrounding the making of the contract which would assist in determining how the language of the document would have been understood by a reasonable man (Chitty para.12-044).

3. Absurdity is to be avoided - "The fact that a particular construction leads to a very reasonable result must be a relevant consideration. The more unreasonable result, the more unlikely it is that the parties can have intended it, and if they do intend it the more necessary it is that they shall make their intention abundantly clear" (Chitty para.12-053).

4. Contract to be construed as so to be lawful - "where the words of a contract are capable of two meanings, one of which is lawful and the other unlawful, the former construction should be preferred" (para.6.09, The Interpretation of Contracts by Lewison, 2nd ed.).

5. Post-contract conduct of the parties is irrelevant - "... it is not legitimate to use as an aid in the construction of the contract anything which the parties said or did after it was made. Otherwise one might have the result that a contract meant one thing the day it was signed, but by reason of subsequent events meant something different a month or a year later" (para.2.11, Lewison).

The various consents

15. In the usual case, the DLO would grant three Certificates of Exemption in redevelopment of New Territories land. In certain circumstances, because of the nature of the site, the approval of the Buildings Department is required for site formation works and drainage works. These approvals are all required for the redevelopment. Further where work has to be done on Government land as well, then a further approval from the DLO is required.

16. The gist of the Plaintiff's case is that Clause 3 refers to a set of documents. The approval of the DLO to carry out work on Government land is as much a pre-requisite to the commencement of the building work as the approval given by the Buildings Authority. Hence it is not right to single out the date of consent given by the Buildings Department as the starting day of the one-year period under Clause 3. The Plaintiff further argued that the rule of construction that one should not construe the words so as to give them an illegal meaning may be offended if the site formation works were to commence without obtaining the DLO's consent to carry out the work on the adjoining Government land.

The key to the solution

17. The "commencement of work paper" is a very loose term. In my view, the key to the solution of the problem of construction is to ask this question : Was the intention of the parties at the time of the Agreement that each and every approval has to be obtained first before work is to commence on the Property? The answer must be "No". This is not because (as submitted by Mr Shieh, Counsel for the Defendants) such a requirement would be subject to the capricious decision of the Authorised Person in charge of the redevelopment who may delay the application for approval to the Government departments. If this is the case, in order to give business efficacy of the Agreement, a term requiring the Authorised Person to act in good faith and to submit the applications for approval within a reasonable time must be implied.

18. The real reason is because this is not something that will happen in real life. This is a matter of common sense and is supported by the factual background before me. Those responsible for building work are expected to time their work in sequence. The fact that approval for certain types of work had not been given would not prevent the development from commencing or cause it to come to a standstill. Just to take an example, if approval had been given by the Buildings Department for the site formation plans, but the Authorised Person chose to cause some minor amendment which would not interrupt the progress of the building work under the plan, the work would not be expected to come to a stop just because the approval for the amendment had not yet been given.

19. The Plaintiff's expert stated that he would not, as a matter of caution, carry out any work until the DLO's approval for work to be done on Government land is obtained. This is merely a matter of caution. In this regard, I accept the evidence of the Defendants' expert on how construction work is done in the New Territories. In my view this approach does not involve any question of illegality. Although some developers may take the risk of building on Government land even before approval had been given, this is not something that needs to be done even if the construction work is to be carried out in stages.

Time to run on 17th May 1996

20. Once this is established, then the answer to the various questions posed by the parties will follow naturally. Time in Clause 3 starts to run with the Buildings Department's consent on 17th May 1996 to carry out the site formation works. This is a village house redevelopment. The size and the height of the houses are specified in the BO (ANT), namely, a three-storey house of not more than 700 sq.ft. and of a certain height. It is not difficult to determine that the site formation works are important items of work and the commencement of this work must count as the commencement of the work for the redevelopment. There really is no reason why this work could not be commenced within the Property while the Plaintiff was waiting for the DLO's consent. The parties agreed that the consent for drainage works could be obtained at a later stage. This being the case, all the more the consent given by the Buildings Department is to be treated as the "commencement of work paper". The rider contained in the consent of 17th May 1996 from the Buildings Department that the Authorised Person must seek approval from the DLO had no statutory force. It did not nullify the statutory consent that was already given.

21. Coming to this conclusion, it is not necessary or permissible to rely on the fact that building works had been, as a matter of fact, carried out on the Property after the consent was given by the Buildings Department. To do so would take the post-contract conduct into account.

The alternative case

22. The alternative case of the Plaintiff is that the consent to commence work was based on the amended plans granted on 10th September 1996. I accept Mr Shieh's submission that the clause should have a uniform meaning irrespective of when one construes the Agreement. The Plaintiff's approach is not workable and would cause uncertainty. One can never be sure what the commencement of work paper is because one can never tell whether the plans had to be amended.

The answers

23. The answers to the questions are :

(1) The consent to carry out site formation works issued by the Buildings Department.

(2) Not applicable.

(3) Time commenced to run under Clause 3 from 17th May 1996.

Costs

24. The Defendants are entitled to have the costs nisi of this trial.