FAR EAST DRUG (B.V.I.) CO LTD v. FIRST PACIFIC CO LTD

HCCL 41/2003

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMMERCIAL ACTION NO.41 OF 2003

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J U D G M E N T

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The application

1. By summonses respectively dated 25 March 2004 and 30 March 2004 the parties to this action sought the determination by the court of a question of law pursuant to the provisions of Order 14A, rule 1 RHC.

2. The court ordered that this question should be determined, given that there was no 'fact sensitivity', and an early hearing date was set. This is the judgment consequent upon that hearing.

The background

3. The point at issue, which is whether the plaintiff's claim in this action is time-barred, arises against the following factual background.

4. This action concerns claims under certain warranties given in a Share Sale and Purchase Agreement ('SPA'), dated 6 December 2001, which provided for the sale of a group of Indonesian companies.

5. The SPA contained limitations to the claims that could be made, the principal of which was contained in Clause 8(D), which provides for a time limitation on such claims. Clause 8(D) reads thus :

"Claims against the Vendor in respect of any breach of the Warranties shall be wholly barred and unenforceable unless written particulars thereof (giving the facts and circumstances of the specific matter or claim in respect of which such claim is made) shall have been given to the Vendor before the date which falls 18 months after the date of this Agreement and such claim shall be treated as withdrawn unless proceedings in respect thereof have been commenced and served on the Vendor before the date which falls 21 calendar months after the date of this Agreement". [Emphasis added]

6. The plaintiff made an initial claim under the warranties by letter dated 12 March 2003. This letter was superseded by a further letter, dated 6 June 2003, wherein the plaintiff reformulated its earlier claims in lower amounts, and additionally raised further claims, all of which are now pleaded in the Points of Claim in this action.

7. It is this subsequent letter of 6 June 2003 which constitutes the significant event in the context of this application.

The question for determination

8. The court essentially is asked to determine whether the plaintiff's claim under the warranties in this action is time-barred by reason of its failure to comply with the requirements of Clause 8(D). The summonses on each side approach the point with differing degrees of specificity, but at the end of the day the question (if not the answer) is a simple one, and is most conveniently reflected in the simple terms of the plaintiff's summons :

"Whether, upon a true construction of Clause 8(D) of the SPA, pleaded in paragraph 1 of the Points of Claim, the plaintiff has brought its claim in time?"

The ambit of the argument

9. The only point is thus. The relevant letter of claim was dated 6 June 2003. Was this letter in time to get this claim off the ground?

10. The defendant says 'no'. Its case is that the letter containing written particulars of claim was too late when delivered on that date. To the contrary, the plaintiff submits that the letter was delivered in time, and that upon the correct time computation it had until 7 June 2003 to make its claim.

11. So there is a difference of 1 day in the respective positions. Who is right?

12. Within this argument there are two distinct elements. First, what is the meaning to be attributed to the word 'month' as used within Clause 8(D); and second, and consequently, what then is the date at which the claim became time-barred?

(i) The meaning of 'month'

13. Mr Beresford, who appears for the defendant, submits that the term 'month' as it appears within the clause should be given its ordinary common law meaning of a space of time containing 28 days, that is, a 'lunar month'. Should he be correct in this contention, of course, there is considerably more than a difference of 1 day separating the parties. On this interpretation the relevant date for the filing of claims would be 24 April 2003.

14. Although he felt obliged to take the point, I suspect that Mr Beresford did not have his heart in this submission, not least because it afforded Mr Sussex SC, for the plaintiff, the opportunity to point out that the word 'lunacy' derives from the Latin for 'moon'.

15. Be that as it may. Whilst indeed the rule at common law was that a month meant 'lunar month' unless the contrary was indicated by context, statute or recognized exceptions, in Phipps v. Rogers [1925] 1 KB 14, at 26, Atkin LJ (as he then was) observed that "the rule is fortunately almost destroyed by exceptions" - one of which, even then, was that it did not apply to mercantile documents.

16. For my own part, notwithstanding Mr Beresford's efforts, I am unable to persuade myself that the word 'months' within a commercial agreement concluded in the 21st century could or should be interpreted to mean other than a calendar month, unless of course the context clearly were to indicate to the contrary. Which it does not in this case. The term 'calendar months' is specifically adopted within Clause 8(D) for the period in which proceedings are to be commenced - there is no dispute in this case that these proceedings have been brought in time - and it would be unusual if, within the same contractual provision, the mechanism for the computations of time should arrogate different meanings to the word 'month'.

17. Accordingly, I am against the defendant on the 'lunar months' submission. I hold that the term 'months' within the phrase "before the date which falls 18 months after the date of this Agreement" means 'calendar months'. I should be surprised if any commercial man in Hong Kong would consider the position to be otherwise.

(ii) Calendar months - the contractual computation

18. This is the nub of the problem. Mr Sussex may well be right when he suggested that the requirement that notice must be given " before the date which falls 18 months after the date of this Agreement" is a brain-teaser set by a lawyer, although whether this was intentional is moot. Certainly it is a trap for the unwary.

19. For his part, Mr Beresford says that, on the basis that the word 'month' means 'calendar month', that which is known as the 'corresponding date rule' should be applied. This means that where a contract provides for the performance of an act within a certain number of months, the period expires on the day of the month bearing the same number as the date on which the period begins or, if there is no such day, on the last day of the month : see Lewison, The Interpretation of Contracts (2004), at 425. See also Dodds v. Walker [1980] 1 WLR 1061 (CA), affirmed by the House of Lords at [1981] 1 WLR 1027, wherein Lord Diplock observed :

"The corresponding date rule is simple. It is easy of application. Except in a small minority of cases...all that the calculator has to do is to mark in his diary the corresponding date in the appropriate subsequent month. Because the number of days in five months of the year is less than in the seven others the inevitable consequence of the corresponding date rule is that one month's notice given in a 30 day month is one day shorter than one month's notice given in a 31 day month and is three days shorter if it is given in February. Corresponding variations in the length of notice reckoned in days occurs where the required notice is a plurality of months."

20. Hence in this instance, submitted Mr Beresford, upon application of this rule, the date which is 18 months after 6 December 2001 is 6 June 2003. Since the agreement requires particulars to have been given before the date which is 18 months after 6 December 2001, and since the date thus ascertained is 6 June 2003, the delivery of particulars of claim on that date is out of time.

21. Mr Sussex does not agree. He says that the letter from the plaintiff was within time, and that the 'corresponding date rule' is not to be applied in light of the wording of the particular provision within Clause 8(D). He argues that since the passage from one date to the next is instantaneous, and because dates both start and end at midnight, the periods between dates can only ever be measured in terms of periods of 24 hours, or multiples of 24 hours, whether they be clear days, or clear weeks or clear months. So that, in terms of the language of Clause 8(D), "the date which falls 18 months after the date of this Agreement" must be 7 December 2001, which is the date identified after the passing of 18 clear months, given that the word 'months' within that clause can only mean 'full' months or 'whole months' or 'clear months'.

22. In the course of argument the court has been referred to a number of authorities, and a good deal has been said about 'inclusive' and 'exclusive' periods, and the approach of the courts when faced with a variety of temporal clauses requiring an act to be done within a specified period or alternatively, specifying a period within which an act is not to be done. I confess that I have not been greatly assisted by these divers examples, and the particular formulation as to time adopted within the present clause appears not to have been the subject of reported authority.

23. In the circumstances, therefore, it strikes me that there is much to be said for the robust approach of Megaw LJ in Carapanayoti & Co. Ltd v. Comptoir Commercial Andre & Cie., S.A., [1972] 1 Lloyd's LR at 144 wherein the judge observed :

"I think it is right to approach the meaning of the clause with which we are here concerned first without reference to the authorities, and to consider what meaning should be given to the words used, in their context, on the basis of the ordinary and natural meaning of those words ..."

24. Accordingly, approaching the clause on this basis, is the relevant date 6 December or 7 December 2003? It can only be one or the other, and regrettably there is no room for any middle ground. On reflection I have concluded that in this context the date "which falls 18 months after the date of this Agreement" is 7 December 2003.

25. I appreciate the logical attraction (and ease of application) of the 'corresponding date rule', but its application in this instance leads to the result that 6 December 2003 is the date falling 18 months less one day after the date of the Agreement, which is not what the clause in question provides. The language used admits of the passage of 18 months, and seems to me to be analogous to that group of cases in which a certain time is to elapse between some event and another, and which attracts the 'clear days' rule: see the observations of Lord Denning MR in Carapanayoti, op cit., wherein the court was wrestling with the meaning of the term 'not later than'. It follows, therefore, that in my view Mr Sussex is right in his 'clear months' submission.

26. In construing this clause I also consider there is merit in the argument, further advanced on behalf of the plaintiff, and echoing the approach adopted in Carapanayoti, op cit., that the time provided for in Clause 8(D) is a claim-barring provision that is inserted for the benefit of the defendant and to the detriment of the plaintiff. Mr Sussex submitted that in this instance the time provision should be construed so as to provide for as much time as the language admits, which was the principle adopted by Lord Esher in In re North [1895] 2 QB 264 at 270, wherein he stated :

"A fair rule of construction seems to be that where a computation is to be for the benefit of the person affected as much time as possible should be given as the language admits of, and where it is to his detriment the language should be construed as strictly as possible."

27. I see no reason in this case why it is not appropriate to adopt a like approach. In this regard I do not share Mr Beresford's view at to the essential 'mutuality' of this clause, in the sense of being for the benefit both of plaintiff and defendant, nor do I accept, as he submitted, that in this instance application of the principle in Re North produces an essentially strained construction. In my view recourse to this principle merely serves to buttress the initial conclusion.

Order

28. The question posed for the determination of the court in the plaintiff's summons dated 30 March 2004 is accordingly determined in the affirmative.

29. In the circumstances I make no order upon the defendant's summons, which reflected the like issue in somewhat more specific form because, as at the date of issue, the parameters of argument were unclear, and Mr Beresford was anxious to cover every possibility. In any event, Mr Beresford was good enough to indicate that he was content to proceed with the determination of the issue as formulated by the plaintiff.

30. As to costs, I make an order nisi that the defendant is to pay the plaintiff's costs of the application, such costs to be taxed if not agreed.