ETERNAL RICH DEVELOPMENT LTD v. TIN YICK HONG REALTY CO LTD

HCA1667/2011

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1667 OF 2011

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BETWEEN

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J U D G M E N T

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1.  This is an application by the defendant pursuant to Order 18, rule 19 of the Rules of the High Court to strike out the plaintiff’s writ and Statement of Claim. The plaintiff is the tenant and the defendant is the owner of certain premises in Kwun Tong from which, for the last 10 years (approximately), the plaintiff has operated a restaurant business.

2.  The plaintiff’s 9‑year lease was due to expire in September 2011 or so the parties entered into negotiations for a renewal of the tenancy.  An agreement was reached which contained conditions.  The plaintiff’s case is that it has fulfilled the conditions and that therefore the defendant is contractually bound to renew the lease.  The defendant, on the other hand, denies that the conditions have been fulfilled, refuses to renew the lease and has forfeited the $500,000 rental deposit.

3.  The Statement of Claim seeks specific performance of the renewal agreement, known as the “Confirmation Agreement”.  By this summons the defendant seeks to persuade the court that this is a plain and obvious case that the claim is obviously unsustainable and bound to fail.

THE ISSUE

4.  Ultimately the defendant submits that the confirmation agreement contained two conditions precedent which the plaintiff was bound to perform before it became obliged to renew the lease.  The defendant submits that both conditions precedent are clear and unambiguous.  It further submits that neither condition has been complied with by the plaintiff who therefore has no basis upon which it can seek specific performance.

BACKGROUND

5.  It order to determine whether or not the defendant has reached the high threshold required of it in striking out applications, it is necessary to outline the background facts leading up to the renewal negotiations.

6.  The key facts, chronologically, are :

(1)   By a letter dated 27 October 2006, the Building Department informed both parties that glass panels on the external walls (which had been in place prior to the plaintiff commencing its tenancy in 2002) were unauthorized building works.  The Department required either their removal or a structural report from an Authorized Person substantiating their safety.

(2)   On 13 February 2007, the Department issued a Building Order in respect of the glass panels against the defendant.

(3)   Nothing positive happened for two years.

(4)   On 14 January 2009, the Department issued a superseding Order against the defendant.  Its position with regard to the glass panels remained the same but this Order added requirements concerning two metal frames, also attached to the external walls. The defendant had instructed structural engineers Kai Yip Consultants Ltd to report on the glass panels but asked the plaintiff to deal with the metal frames.

(5)   Again, little progress was made and the Department issued reminder letters in July 2009 and April 2010.

(6)   The consequence of the defendant’s lack of any real progress in dealing with the department’s order, which had originally been brought to their attention 4 years earlier, was that the expiration of the tenancy was drawing ever nearer.  Therefore in November 2010 the parties commenced discussions for a new tenancy, which was due to expire in September 2011.

(7)   On 11 March 2011, the parties entered into two Chinese agreements, a ‘Confirmation Agreement’ and a ‘Supplemental Agreement’.  The parties, for the purpose of this litigation, at present, do not agree on the proper translation of these agreements.  The plaintiff has notified the defendant, by letter, of its translation.  The defendant made no specific opposition to the translation but, on the day before this hearing, produced its own certified translations.  The plaintiff had not been aware that these certified translations were being prepared.

Ultimately, little or nothing may turn on the slight differences in the translation.  However, for present purposes, the plaintiff has been provided with certified translations which it is not prepared to agree.  There is therefore a current dispute concerning the wording of the agreements.  What follows are extracts from the defendant’s translations produced at the 11^th hour :

(a)   The Confirmation Agreement

“The tenant promises within 75 days upon signing of the Tenancy Confirmation (‘Time Limit’) to complete all rectification works stipulated in the order no. UBZ/U12-10/0002/06 with file no. EB4021/85/S19(BUC06) issued by the Buildings Authority dated 14 January 2009 (‘Order’) at its own costs.”

(b)   The Supplemental Agreement (Party B is the plaintiff)

“Party B promises within 75 days upon signing of the Tenancy Confirmation (the ‘Time Limit’) to remove all advertisement signboards marked in red in the Appendix 1 and the unauthorized structures which are illegal or in breach of the deed of mutual covenant at its own costs.”

(8)   By 23 May 2011, the plaintiff had a report prepared by Kai Yip Consultants confirming the safety of the glass panels and had removed all signboard marked in red.

The defendant’s position, however, is that the plaintiff has not “completed all rectification works stipulated in the order …” and has not removed all “unauthorized structures which are illegal”, regardless of what the Kai Yip report says.

APPROACH TO ISSUES OF INTERPRETATION OF AND CONSTRUCTION OF CONTRACTUAL TERMS

7.  Two legal issues require a brief consideration under this heading.  First, the general principles and secondly, the admissibility of pre-contract discussions when considering the intention of the parties.

(a)       General Principles

8.  Mr Kenneth Wong, counsel for the defendant relies on dicta such as :

“The approach of the English law to questions of the true construction of contracts of this kind is to seek objectively to ascertain the intentions of the parties from the words which they have chosen to use. If those words are clear and admit of only one sensible meaning, then that is the meaning to be ascribed to them and that meaning is taken to represent what the parties intended.”

(From Vitol BV v Compagnie Europeene des Petroles [1988] 1 Lloyd’s Rep. at p.576).  Such dicta undoubtedly provides the basic starting point.

9.  However Mr Benny Lo, the plaintiff’s counsel, submits that the traditional hard and fast rule must be tempered with a degree of commercial common sense and has referred to a number of more recent judicial comment including :

“The interpretation of contract has generated a substantial body of case law. Contracts are not made in a vacuum. In construing a contract, it is important to bear in mind, amongst other things, the context or setting in which a contract was made, and the purpose for which it was made. The test is invariably objective.”

(per Cheung CJHC in Sinoearn International v Hyuandai-CCECC Joint Venture, CACV83/2011 at p.11) and :

“In construing badly drafted contracts, the Court should be less willing to be driven by semantic niceties to attribute to the parties an improbable and un-businesslike intention if the language used, whatever it may lack in precision, is reasonably capable of an interpretation which attributes to the parties an intention to make provision for contingencies inherent in the work contracted for on a sensible and businesslike basis.”

(Lord Bridge at p.39 in Mitsui Construction Co. Ltd v A.G. of Hong Kong [1987] 1 HKC 31) and :

“In determining the meaning of the language of a commercial contract, and unilateral contractual notices, the law therefore generally favours a commercially sensible construction. The reason for this approach is that a commercial construction is more likely to give effect to the intention of the parties. Words are therefore interpreted in the way in which a reasonable commercial person would construe them. And the standard of the reasonable commercial person is hostile to technical interpretations and undue emphasis on niceties of language.”

(Mannai Investment Co. Ltd v Eagle Star Life Assurance [1997] AC 749.)

10.  This somewhat less rigid approach is important in the present case when considering the intention of the parties.

(b)       Pre-contract discussions

11.  Again there is a firm basic principle and again, there are circumstances when it can be relaxed. Generally, evidence of pre-contractual negotiations will not be admitted to interpret a written agreement.  However, it may be if its purpose is to establish a party’s knowledge of facts or to clarify ambiguities. 

12.  In the present case, where an unresolved dispute exists as to what the written contract actually says, it is not the function of this court in this application to decide what evidence of pre-contractual negotiations may or may not be admitted to establish the true and genuine intentions of the parties.  Suffice it to say that it is readily apparent that evidence does exist, upon which the plaintiff relies, which, if admitted, would support their, seemingly genuine, contention that they did comply with the conditions precedent in the written agreements.

13.  The existence of such, potentially, admissible evidence thwarts the defendant from reaching that high threshold of establishing that the plaintiff simply cannot win.

EVIDENTIAL ISSUES

14.  Having concluded that this is an appropriate case to go to trial, it is undesirable to consider in any detail the merits.  It is sufficient to merely record some or all of those issues which the plaintiff will seek to adduce at trial to demonstrate that this is a claim which is not bound to fail.

15.  For example, concerning the Confirmation Agreement :

(a)   evidence from witnesses on both sides (and a genuine belief on the part of the plaintiff) that rectification works leading to a certification of safety would amount to compliance;

(b)   documentary evidence that the Building Department would consider withdrawing the Building Order upon receipt of a certificate of safety;

(c)   evidence of the Building Department’s satisfaction that the works done were indeed safe and satisfactory within the agreed time frame; and

(d)   evidence that prior to the written agreements, it was the defendant who was required to comply with the Building Order and it was the defendant who had engaged Kai Yip with a view to satisfying the Department of the safety of the panels.

16.  Secondly, concerning the supplemental agreement :

(a)   the plaintiff’s English translation of the Supplemental Agreement is, arguably, capable of being interpreted so that only the sign boards marked in red needed to be removed;

(b)   the defendant’s interpretation of the Supplemental Agreement is too vague in that, it lacks any specification of those structures which are said to be unauthorized and illegal; and

(c)   the factual matrix logically leads to a conclusion that both parties intended that the list of unauthorized structures to be removed was confined to those marked in red.

17.  For the above reasons, I dismiss the defendant’s application to strike out the plaintiff’s Statement of Claim with costs to the plaintiff to be taxed if not agreed.