YEN WING CHOI & LEE SHUI CHI SHIRLEY AND OTHERS v. MATCH POWER INVESTMENT LTD

HCA1829/2005

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1829 OF 2005

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BETWEEN

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J U D G M E N T

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1.  In this action, the plaintiffs claim against the defendant for damages and payment of interest under their respective sale and purchase agreements with the defendant. This is the trial of preliminary issues pursuant to the Order of Burrell J dated 16 May 2007.

The facts

2.  The action concerns a property development known as “One Beacon Hill” situated at New Kowloon Inland Lot No. 6277 (“the Development”).

3.  The defendant is the developer of the Development. It is a wholly owned subsidiary company of Cheung Kong (Holdings) Limited.

4.  The plaintiffs are the purchasers of various units in the Development. On diver dates between April and September 2003, they entered into provisional agreements and also formal sale and purchase agreements for the purchase of their respective units as follows:

Plaintiff	Date of provisional agreement	Date of formal agreement	Units	Price (HK$)
1st	12-9-2003	16-9-2003	Flat E 3rd Floor Tower 1	7,300,000
2nd	6-9-2003	9-9-2003	Flat C 3rd Floor Tower 8	6,000,000
3rd	3-5-2003	7-5-2003	Flat D 5th Floor Tower 9	6,000,000
4th	23-4-2003	24-4-2003	Flat D 8th Floor Tower 9	6,110,000
5th	5-5-2003	7-5-2003	Flat C 12th Floor Tower 9	6,380,000
6th	4-6-2003	7-6-2003	Flat D 9th Floor Tower 10	6,128,000
7th	16-8-2003	18-8-2003	Flat A 11th Floor Tower 12	8,600,000

5.  The formal sale and purchase agreements signed by the plaintiffs (collectively “the formal Agreements”) are in identical terms and follow the standard form approved by the Government for use in the pre-sale of uncompleted flats under the Consent Scheme.

6.  For the purpose of this trial, it will be sufficient to summarise several of the relevant provisions in the formal Agreements as follows:

(1)  Clause 4(1)(c) -- The vendor shall complete the Development in compliance with the conditions of the Government Grant and the building plans on or before 31 December 2003, subject to extensions granted by the Authorised Person.

(2)  Clause 4(4)(a) – If the vendor fails to complete the Development by the date specified in clause 4(1)(c) or as extended, the purchaser shall be at liberty to rescind the agreement.

(3)  Clause 4(4)(b) – If the purchaser does not rescind the agreement, the vendor shall pay to him interest at the rate of 2% p.a. above the prime rate on all amounts paid under the agreement, calculated from the date following the completion date or the extended date up to the date of completion of the Development.

(4)  Clause 4(5)(a) – The vendor is entitled to such extension of time as shall be granted by the Authorised Person as appearing to him to be reasonable having regard to, inter alia, inclement weather.

(5)  Clause 4(6) – The vendor shall, within 14 days of the completion of the Development, apply for a Certificate of Compliance or the consent of the Director of Lands to assign.

(6)  Clause 4(7) – The Certificate of Compliance or the consent of the Director of Lands shall be conclusive evidence that the Development has been completed, but the vendor is not precluded from proving compliance with clause 4(1)(c) by other means.

7.  By a certificate dated 8 December 2003, the Authorised Person certified an extension of the completion of the Development to 29 February 2004 on account of inclement weather.

8.  On 29 July 2004, the defendant obtained the Certificate of Compliance. There had been disagreements between the Director of Lands and the defendant as to whether the defendant had complied with the development conditions under the Government Grant. To avoid conflict of interest and on the intervention of the Legal Advisory and Conveyancing Office of the Lands Department, the firm of solicitors who initially represented both the 2^nd to 7^th plaintiffs and the defendant in the sale and purchase of the units ceased to act for them on 14 July 2004.

9.  It is the plaintiffs’ case that the defendant was in breach of clause 4(1)(c) in failing to complete the Development in compliance with the conditions of the Government Grant and the building plans on or before 31 December 2003 or 29 February 2004 and that, as such, they are entitled to damages, including payment of interest under clause 4(4)(b).

10.  In August 2004, when the parties had become separately represented in the sale and purchase of the units, the 2^nd, 3^rd, 4^th, 6^th and 7^th plaintiffs, through their respective solicitors wrote to the defendant’s solicitors either making demands for payment of interest pursuant to clause 4(4)(b) of the formal Agreement or reserving the rights to make claims arising out of the delay in completion.

11.  All the plaintiffs did not rescind the formal Agreements and proceeded to complete the purchase and sign the assignments on the following dates:

	Plaintiff	Date of assignment
	1st	13 August 2004
	2nd	18 August 2004
	3rd	11 August 2004
	4th	10 August 2004
	5th	11 August 2004
	6th	13 August 2004
	7th	11 August 2004

12.  The contentious issue of whether the defendant was in breach of its contractual obligation is not to be determined in this trial. This trial relates to six identical documents signed by the 2^nd to 7^th plaintiffs respectively, which have been collectively referred to in these proceedings as the Settlement Agreement. It is the defendant’s case that as a result of the execution of this document, each of the 2^nd to 7^th plaintiffs had fully and finally settled their claims against the defendant for delayed completion of the Development.

13.  The events leading to the signing of the Settlement Agreement are not in dispute and can be summarised as follows.

14.  At the time the plaintiffs signed the provisional agreements, they also signed an undated letter, which was from Cheung Kong Property Development Limited as sales agent for the defendant (“the Option Letter”). By this letter, the defendant undertook to offer to sell to each of the plaintiffs a car parking space of the Development at the price of HK$1.00 subject to certain terms and conditions (“the Option”). It is common ground that completing the purchases of the relevant units is a precondition for the exercise of the Option by the plaintiffs.

15.  Not long after the execution of the assignments for their units, the plaintiffs were asked by the defendant’s staff to go to the defendant’s office to select a car parking space in the Development. They were also told to bring along the Option Letter. The plaintiffs did accordingly.

16.  When they were at the defendant’s office and after selecting the car parking space, the plaintiffs returned the Option Letter to the defendant for cancellation. A copy stamped with the word “cancelled” was given back to them. On that occasion, the plaintiffs also signed several documents. The first are the provisional agreements for the purchase of the car parking spaces they had selected. The second is the “Warning to Purchasers” reminding the plaintiffs, inter alia, that the provisional agreement is a binding agreement and of the right to instruct independent solicitor instead of the vendor’s solicitors to conduct the purchase. The third document that the plaintiffs were given and asked to sign was the Settlement Agreement. All, except the 1^st plaintiff, had signed this document.

17.  The visit to the defendant’s office and the signing of the Settlement Agreement by the 2^nd to 7^th plaintiffs took place on the following dates:

	Plaintiff	Date of Settlement Agreement
	2nd	30 September 2004
	3rd	3 September 2004
	4th	30 August 2004
	5th	31 August 2004
	6th	30 August 2004
	7th	3 September 2004

18.  Subsequently, the parties signed the formal sale and purchase agreements and went on to complete the purchase of the car parking spaces.

19.  At about the same time, the Consumer Council received complaints in connection with the delayed completion of the Development. This led to a series of correspondence between the Consumer Council and Cheung Kong Property Development Limited and the defendant. By letter dated 17 August 2004, the defendant disputed the purchasers’ entitlement to claim interest for delayed completion, but indicated that, as a gesture of goodwill, it was prepared to resolve the matter amicably and on the basis of confidentiality. The Consumer Council replied by letter dated 6 September 2004, welcoming the offer to resolve the complaints amicably while maintaining that all purchasers should be treated on the same basis and did not agree to any term of confidentiality imposed. Subsequently in October 2004, Cheung Kong Property Development Limited wrote to the Consumer Council, indicating that on the basis of the Settlement Agreement, there was a full and final settlement of the disputes with the purchasers.

The action

20.  In September 2005, the writ in this action was filed. The plaintiffs are funded by the Consumer Protection Litigation Fund.

21.  The plaintiffs’ principal claim is for interest under clause 4(4)(b) of the formal Agreements and damages arising out of late completion of the Development. In respect of the Settlement Agreement, the 2^nd to 7^th plaintiffs say that upon proper construction, it was no more than an acknowledgement of their having exercised the Option. Alternatively, they say the Settlement Agreement is not binding on them on the ground of non est factum or is liable to be set aside on the ground of mistake. In the further alternative, it is said that the Settlement Agreement is not enforceable as an agreement to release the defendant from all outstanding liabilities as it is not supported by consideration. The 2^nd to 7^th plaintiffs seek a declaration that the defendant is not entitled to rely on the Settlement Agreement as a defence to their claim.

22.  The defendant denies there was delay in the completion of the Development. Alternatively, the defendant says that on the true construction of the Settlement Agreement, the 2^nd to 7^th plaintiffs had fully and finally settled their claims herein against the defendant. The defendant further denies that the 2^nd to 7^th plaintiffs can properly rely on the doctrine of non est factum or mistake in that they had been negligent and that if they were labouring under any mistake, it was a mistake as to the legal effect and proper construction of the document. It is also pleaded that the plaintiffs had affirmed the Settlement Agreement. As to consideration, the defendant says the Settlement Agreement is supported by good consideration, namely, the defendant would pay, and the 2^nd to 7^th plaintiffs were not required to pay, the legal costs for the formal agreement and assignment of the car parking spaces, and the defendant also became legally bound to allocate and assign the car parking spaces that the 2^nd to 7^th plaintiffs had selected. The defendant also relies on the fact that the Settlement Agreement was executed as a deed.

Trial of preliminary issues

23.  By summons filed on 20 February 2006, the defendant applied to strike out the claim and, alternatively, to have a trial of preliminary issues. The summons was dismissed by the Master. The defendant appealed. On 16 May 2007, Burrell J allowed the appeal and ordered that there be a trial of preliminary issues.

24.  The preliminary issues ordered to be tried before the trial of the action are:

(1)  Whether, on the true construction of the Settlement Agreement, the 2^nd to 7^th plaintiffs have compromised, waived or settled their claims herein.

(2)  Whether the Settlement Agreement is void on the ground of non est factum.

(3)  Whether the Settlement Agreement is liable to be set aside on the ground of mistake.

(4)  Whether the Settlement Agreement is not enforceable against the 2^nd to 7^th plaintiffs for want of consideration.

25.  These preliminary issues do not concern the 1^st plaintiff.

26.  As to issue (4), the position of the 2^nd to 7^th plaintiffs at the trial is that they do not contend that the Settlement Agreement is not enforceable because of lack of consideration, having regard to the fact that the document was executed in the form of a deed. This issue therefore does not call for a determination. However, the question of consideration for the Settlement Agreement remains of relevance in connection with issues (2) and (3). The 2^nd to 7^th plaintiffs’ do not accept that actual consideration had flowed from the defendant so as to give rise to the need of restoration in the event the Court found for them in issues (2) and (3).

27.  At the trial, the only witnesses testifying were from the plaintiffs. They are the 1^st named 2^nd plaintiff (Wu), the 1^st named 3^rd plaintiff (Tao), the 4^th plaintiff (Kwok), the 5^th plaintiff (Lam) and the 2^nd named 7^th plaintiffs (Tong). The defendant called no witness.

28.  Neither the 1^st named nor 2^nd named 6^th plaintiff gave evidence at the trial. They do not pursue their claim on the basis of non est factum or mistake.

The Settlement Agreement

29.  The Settlement Agreement, which is the core document in this trial, is in the following form and terms:

Date:

Re: One Beacon Hill

The property comprises Car Parking Space No. [P ] on Car Park [ ] and Flat [ ], [ ] Floor, Block [ ], One Beacon Hill.

The purchaser, namely, , has selected the above car parking space today. The full purchase price of the above car parking space is HK$1.00. By signing this letter, the car parking space purchase option letter between the purchaser and Match Power Investment Limited is hereby exercised as the full and final settlement of all the purchaser’s rights relating to the purchase of the property. The car parking space purchase option letter No. [ ] is hereby returned to Match Power Investment Limited for cancellation. This letter is part of the formal agreement.

Match Power Investment Limited will pay the legal costs for preparing the formal agreement for sale and purchase and the assignment in respect of the above car parking space prepared by solicitors designated by Match Power Investment Limited.

Sealed with the Common Seal of Signed Sealed and delivered by

Match Power Investment Limited and

Signed by

[                        ],

its authorized signatory

____________________________	____________________________
	本人/我們已明白以上英文内容

30.  A red wafer was put above the signature of each of the plaintiffs. It is the 2^nd to 7^th plaintiffs’ case that the red wafers were added after they had signed on the document. This is obviously so in the case of the 7^th plaintiff because the wafer had covered part of the signature. There is also no evidence or suggestion from the defendant that the situation was otherwise.

Construction

31.  Issue (1) relates to the construction of the Settlement Agreement, whether the effect of it is that the 2^nd to 7^th plaintiffs had compromised, waived or settled their claims herein. The central issue is the meaning of the sentence: “By signing this letter, the car parking space purchase option letter between the purchaser and Match Power Investment Limited is hereby exercised as the full and final settlement of all the purchaser’s rights relating to the purchase of the property.”

32.  Counsel have no disagreement on the relevant legal principles. A useful summary of the general principles by which contractual documents are construed is to be found in the judgment of Lord Hoffmann in Investors Compensation Scheme Ltd v. West Bromwich Building Society [1998] 1 WLR 896 at 912H-913F as follows:

“… as a result of the speeches of Lord Wilberforce in Prenn v. Simmonds [1971] 1 W.L.R. 1381, 1384-1386 and Reardon Smith Line Ltd. v. Yngvar Hansen-Tangen [1976] 1 W.L.R. 989, …[t]he result has been, subject to one important exception, to assimilate the way in which such documents are interpreted by judges to the common sense principles by which any serious utterance would be interpreted in ordinary life. Almost all the old intellectual baggage of "legal" interpretation has been discarded. The principles may be summarised as follows:

(1)  Interpretation is the ascertainment of the meaning which the document would convey to a reasonable person 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.

(2)  The background was famously referred to by Lord Wilberforce as the "matrix of fact," but this phrase is, if anything, an understated description of what the background may include. Subject to the requirement that it should have been reasonably available to the parties and to the exception to be mentioned next, it includes absolutely anything which would have affected the way in which the language of the document would have been understood by a reasonable man.

(3)  The law excludes from the admissible background the previous negotiations of the parties and their declarations of subjective intent. They are admissible only in an action for rectification. The law makes this distinction for reasons of practical policy and, in this respect only, legal interpretation differs from the way we would interpret utterances in ordinary life. The boundaries of this exception are in some respects unclear. But this is not the occasion on which to explore them.

(4)  The meaning which a document (or any other utterance) would convey to a reasonable man is not the same thing as the meaning of its words. The meaning of words is a matter of dictionaries and grammars; the meaning of the document is what the parties using those words against the relevant background would reasonably have been understood to mean. The background may not merely enable the reasonable man to choose between the possible meanings of words which are ambiguous but even (as occasionally happens in ordinary life) to conclude that the parties must, for whatever reason, have used the wrong words or syntax. see Mannai Investments Co. Ltd. v. Eagle Star Life Assurance Co. Ltd.[1977] A.C. 749.

(5)  The "rule" that words should be given their "natural and ordinary meaning" reflects the common sense proposition that we do not easily accept that people have made linguistic mistakes, particularly in formal documents. On the other hand, if one would nevertheless conclude from the background that something must have gone wrong with the language, the law does not require judges to attribute to the parties an intention which they plainly could not have had. Lord Diplock made this point more vigorously when he said in The Antaios Compania Neviera S.A. v. Salen Rederierna A.B. 19851 A.C. 191, 201:  "if detailed semantic and syntactical analysis of words in a commercial contract is going to lead to a conclusion that flouts business commonsense, it must be made to yield to business commonsense."

33.  Lord Hoffmann made similar observations in Jumbo King Ltd v. Faithful Properties Ltd (1999) 2 HKCFAR 279, 296D-I, when it was pointed out that “the overriding objective in construction is to give effect to what a reasonable person rather than a pedantic lawyer would have understood the parties to mean”, and the attempt to discover what a reasonable person would have understood the parties to mean “involves having regard, not merely to the individual words they have used, but to the agreement as a whole, the factual and legal background against which it was concluded and the practical objects which it was intended to achieve.”

34.  Accordingly, an objective approach is to be adopted. The emphasis is not on what the parties meant or understood by the words in the document; rather what matters is the meaning which the document would reasonably have conveyed to the parties in the situation in which they were at the time of making the contract. Further, the words or terms are not to be read in isolation, but should be looked at against the textual background of the document and also the relevant surrounding circumstances.

35.  In the present case, the relevant factual matrix surrounding the signing of the Settlement Agreement are:

(1)  As a result of their purchasing a residential unit in the Development, each of the plaintiffs was given an option to purchase a car parking space of the Development at $1.00.  The precondition for the exercise of the Option is the completion of the purchase of the unit.

(2)  When the plaintiffs were told to attend the defendant’s office in relation to the car parking space, completion of the purchase of the residential unit had already taken place.  Hence, the plaintiffs’ entitlement to purchase a car parking space at $1.00 had already accrued.

(3)  Before they were told to go to the defendant’s office, the plaintiffs (except the 5^th plaintiff) had either made demands for interest payment under clause 4(4)(b) of the formal Agreement or reserved their rights to make claims.  They, however, had not commenced any legal proceedings.

(4)  Admittedly, when the plaintiffs were told to go to the defendant’s office, they were informed that the purpose of the attendance was to exercise the Option and to select a car parking space.  The plaintiffs were reminded to bring along the Option Letters.

(5)  At the defendant’s office, the plaintiffs were provided with floor plans of the car park and were allowed to make selections.

(6)  After selecting the car parking space, the plaintiffs were asked to, and they did, return the Option Letter for cancellation and sign the provisional agreement for the car parking space and the Settlement Agreement. A copy of the Option Letter stamped “cancelled” was given back to them.  They were however not provided with copy of the Settlement Agreement.

(7)  The signing of the formal agreement for the car parking space and completion were to take place later on.

(8)  Throughout, whether at the time when the plaintiffs were told to go to the defendant’s office or while they were at the defendant’s office, nothing had been said about the question of delay in completion or the plaintiffs’ related complaints or demands for interest.

36.  As to the textual background of the document itself, the following points are relevant:

(1)  Although at the end of the Settlement Agreement there is a reference to it being sealed, the document is twice described or referred to as a letter in the first paragraph.

(2)  At the start of the document, there is a sentence in bold print, stating that the property comprises the car parking space and the residential unit.

(3)  The sentence that forms the subject matter of dispute is set between three sentences, which are all statements of fact. The two sentences that preceded it state that the plaintiffs had selected a car parking space and paid the price of $1.00.  The sentence that immediately follows it states that the Option Letter was returned for cancellation.

(4)  This is then followed by a statement that the letter (meaning the document) is part of the formal agreement, which, as a matter of logical and natural construction, would be a reference to the formal agreement for the car parking space.

(5)  In a new paragraph, it is stated that the defendant will pay the legal costs for preparing the sale and purchase agreement and the assignment for the car parking space.

37.  Turning next to the important sentence, which reads: “By signing this letter, the car parking space purchase option letter between the purchaser and Match Power Investment Limited is hereby exercised as the full and final settlement of all the purchaser’s rights relating to the purchase of the property.” The first part of the sentence states that the Option is exercised by the signing of this document. Mr Shieh SC submits, and I accept, that this is strictly speaking incorrect because the Option is not exercised by the signing of this document, but by signing of the provisional agreement for the car parking space.

38.  The sentence goes on to provide that the exercise of the Option is as full and final settlement of all the purchaser’s rights relating to the purchase of the property. The words “full and final settlement” are ordinary English words. They should not be regarded as a term of art or a legal term with the consequence that they must be referring to the settlement or compromise of a claim or legal action. Instead, it is important to consider them together with the rest of the sentence. The important question is whether a reasonable man, having all the background knowledge and in the situation of the plaintiffs at the time when they were at the defendant’s office, would have understood “full and final settlement of all the purchaser’s rights relating to the purchase of the property” to refer to or cover the claim for payment of interest under clause 4(4)(b) of the formal Agreement and/or damages for delay in completion. In my view, he would not.

39.  Firstly, what the plaintiffs had been told and understood about the purpose of the attendance at the defendant’s office is that it was to select the car parking space. They had not been told and there was no indication that it was also an occasion to deal with their complaints about the delay in completion or demands for compensation under the formal Agreement. Plainly, the intention of the plaintiffs in attending the defendant’s office was to select and purchase the car parking space. They went there to exercise the right under the Option Letter, a right that they obtained as a result of purchasing a residential unit of the Development and which had accrued since completion of the sale and purchase of the residential unit.

40.  Secondly, when they were at the defendant’s office, the plaintiffs selected the car parking space, returned the Option Letter for cancellation and signed the provisional agreement and the warning notice relating to the purchase of the car parking space. What took place corresponds with the purpose of the occasion as related by the defendant’s staff and understood by the plaintiffs. Not a word was said about the plaintiffs’ complaints or demands concerning the delay in completion. There was no indication that the occasion was also to deal with the plaintiff’s complaints or demands for payment of interest and damages.

41.  A reasonable man in the position of the plaintiffs would not have connected the occasion, the exercise of the Option and the selection and purchase of the car parking space with the issue of delay in completion. It would not have occurred to him that apart from exercising the Option, he was also there dealing with his complaint or demand over the delay in completion. In the circumstances, a reasonable man would not have read and understood “all the purchaser’s rights relating to the purchase of the property” as referring to or covering a claim for payment of interest under clause 4(4)(b) of the formal Agreement and/or damages for delay in completion. Still less would he have read the sentence to mean that the signing of the letter and/or the exercise of the Option operated as a compromise, waiver or settlement of such a claim.

42.  Mr Yu SC argues that having regard to the fact that the parties were in dispute as to whether the defendant was guilty of delay in the completion of the Development, and whether the plaintiffs were entitled to claim interest for delay, the words in question can only convey to a reasonable person the meaning contended by the defendant. I do not agree. It is true that the plaintiffs had through their respective solicitors written to the defendant’s solicitors complaining about the delay and/or demanding payment of interest and the defendant’s solicitors had replied, denying delay. It is also the case that the plaintiffs were aware of this. At the time, however, apart from the exchange of correspondence, there was no legal proceeding on foot. The parties were also not engaged in discussions to resolve the dispute. In light of the stated purpose of the occasion, and having regard to what took place when the plaintiffs attended at the defendant’s office, I do not consider that a reasonable man with knowledge of the relevant factual matrix would have cause to connect the occasion and the exercise of the Option to the dispute over delay in completion and the claim for interest, and would have read the sentence as meaning a compromise of the dispute or claim.

43.  In the context of the document, the thrust of the first paragraph is about the exercise of the Option and the selection and purchase of the car parking space. The second paragraph also relates to the purchase of the car parking space, dealing with the legal costs for the formal agreement and the assignment. The impression that the document gives to a reasonable reader is that it is a document to do with the exercise of the Option, a right that the plaintiffs had acquired with the purchase and completion of the residential unit. I agree with Mr Shieh SC that the whole text of the document is consistent with it being evidence the exercise of the Option.

44.  Further, it would be ascribing to the word “rights” an unnatural meaning if the sentence were to be read as bearing the meaning contended by the defendant. The defendant does not accept that there was delay in completion and/or that the purchasers are entitled to interest or damages under the formal Agreement. The word “rights” in its ordinary meaning will connote an entitlement. It would be most odd to refer to the purchasers’ demand or claim for interest and damages for delay in completion as “rights relating to the purchase of the property”. It would also be unduly straining the meaning of the word “rights” to mean or cover a disputed claim or demand.

45.  The parties are in disagreement over whether the word “property” in the sentence also covers the residential unit. The defendant says that it does as the word “property” was defined in the sentence in bold print appearing at the top of the document to include both the car parking space and the residential unit. The plaintiffs, on the other hand, contend that the sentence in bold print is more in the nature of a caption or heading rather than a definition clause. In my view, it is immaterial whether the word “property” in the sentence under consideration bears the same meaning as that appearing in the sentence in bold print. As the Option is a right that arose from and associated with the purchase of the residential unit, it is a reasonable and sensible construction to read “all the purchaser’s rights relating to the purchase of the property” as referring to the purchasers’ rights in relation to a the purchase of a car parking space under the Option, irrespective of whether the word “property” covers the residential unit.

46.  In my judgment, the sentence “By signing this letter, the car parking space purchase option letter … is hereby exercised as the full and final settlement of all the purchaser’s rights relating to the purchase of the property”, construed objectively against the factual matrix and in the context of the document, does not mean that the parties by signing the document had fully and finally settled the claim for interest or damages for delay in completion. The sentence is no more than a reference to the purchasers having exercised the Option. On a true construction of the Settlement Agreement, it does not have the effect of compromising, waiving or settling the 2^nd to 7^th plaintiffs’ claims herein.

47.  Counsel have in the course of submissions on this issue of construction referred to the contra proferentum rule. It is the plaintiffs’ arguments that if there are ambiguities in the meaning of the Settlement Agreement, including the words “the property” or “full and final settlement of all the purchasers’ rights …”, then the rule should be applied and the document should be construed against the defendant. In light of my conclusion on this issue of construction, there is no need to consider the rule. I need only say that there is great force in the submission that this is a classic case for the operation of the rule. Among other matters, there is little doubt that the Settlement Agreement was carefully thought out and drafted. Both the words and the layout of the document were chosen and presented with care. The meaning contended by the defendant is by means complex and can be easily and simply conveyed. There would be no want of resources for the defendant to put up a simple, clear and straightforward document for the purchasers to sign. Further, the result contended by the defendant is plainly against the plaintiffs’ interest when one considers the amount of their claims against the benefits said to be flowing from the defendant. Hence, it would be incumbent upon the defendant to use language that left no room for doubt and if it failed to do so, any ambiguity should be resolved against it.

48.  Given my conclusion on issue (1), it is strictly speaking not necessary to decide on the other issues. However, for completeness’ sake, I shall also deal with issues (2) and (3), albeit briefly.

Non est factum

49.  Issue (2) relates to whether the Settlement Agreement is void on the ground of non est factum. The doctrine is a recognized legal exception to the general rule that a person of full age and ordinary understanding would be held to the document that he had chosen to sign, even though he signed without knowing its contents: Ming Shiu Chung & Others v. Ming Shiu Sum & Others (2006) 9 HKCFAR 334, paras.83-87. It has been laid down in Saunders v. Anglia Building Society [1971] AC 1004 that in order for the doctrine to apply, it must be shown that: (i) the party relying on it is under a disability (whether permanent or temporary); (ii) there is a radical difference between what was signed and what the person thought he was signing; and (iii) he had not acted negligently in appending his signature. Fraud or misrepresentation is not a necessary ingredient of the plea. Although, as a matter of law, the doctrine is available to persons who are of full age and capacity, the House of Lord had emphasized that this will be exceptional and rare: see 1016C, 1023B and 1027B. Ultimately, it is a question of fact and reasonableness of conduct of the party seeking to rely on the doctrine.

50.  In the Australian case of Petelin v. Cullen (1975) 132 CLR 355, a distinction is drawn between a case where the plea is asserted against the immediate party to the document and against an innocent party who relies on the document and signature and who is unaware of the circumstances in which it came to be executed. It was held that where the defence is asserted against the other party to the transaction who is aware of the circumstances in which it came to be executed and who knows or has reason to suspect that it was executed under some misapprehension as to its character, the law must give effect to the policy which requires that a person should not be held to a bargain to which he has not brought a consenting mind. The requirement that the person must not be careless in appending his signature is considered to be of no relevance in such a case.

51.  While I can see the attractiveness of the reasoning and principle in Petelin v. Cullen, I have considerable reservations whether it should be applied in Hong Kong. First, it is incompatible with the principles established in Saunders v. Anglia Building Society, which forms part of our law. Second, it also does not seem to sit well with the recent judgment of the Court of Final Appeal in Ming Shiu Chung & Ors v. Ming Shiu Sum & Ors, which not only follows Saunders v. Anglia Building Society, but also stresses that a signed instrument will not be invalidated by the mere fact that the signatory signed unaware of its content. Third, as suggested by Woolf LJ in Lloyd Bank plc v. Waterhouse [1993] 2 FLR 97, there is an element of misrepresentation in Petelin v. Cullen and the decision can be explained on this basis. In the present case, there is no suggestion or plea of a misrepresentation.

52.  In my view, the major difficulty that the plaintiffs encounter in raising the plea of non est factum is to show that they had not acted carelessly in signing the Settlement Agreement. Except Ms Lam and Miss Tong, all the other plaintiffs who had testified had received tertiary education and are able to read and understand English. Mr Wu is a businessman and runs a business of education centres. Mr Tao had worked as an audit manager with a major accountancy firm for some years and is a financial controller of a computer company employing over 1,000 employees. Mr Kwok is an occupational therapist. In the case of Ms Lam and Miss Tong, they had received up to secondary education. Ms Lam had previously worked as a waitress, receptionist and beautician, but is now a housewife. Miss Tong worked in her father’s embroidery company.

53.  There is no dispute that the 2^nd to 5^th and 7^th plaintiffs had all been given an opportunity to read the Settlement Agreement. The evidence of Mr Wu is that he had skimmed through the Settlement Agreement but had not read through it carefully nor paid particular attention to the contents. Similarly, Mr Tao said he had looked at the document briefly, but had missed the sentence about “full and final settlement”. He accepted that he had no difficulty understanding the document. He also accepted that had he read more carefully, he should have noticed the sentence and should have known that it had something to do with the dispute with the defendant. Mr Kwok’s evidence is that he had paid very little attention to the terms and content of the Settlement Agreement, other than the description of the car parking space he had selected. In the case of Ms Lam, she said she had only looked at the description of the car parking space and the address of the unit and she could not fully understand the contents of the Settlement Agreement because it was in English. Her evidence is that a staff of the developer had told her that the document was only an acknowledgement of having exercised the Option, but it is not her pleaded case that she had relied on the defendant’s staff in ascertaining the contents of the Settlement Agreement. As for Miss Tong, her evidence is that she did not read the document at all.

54.  Mr Yu SC criticizes the manner in which the witnesses came to append their signatures on the Settlement Agreement. It is suggested that they were not truthful in explaining why they had signed the document but without noticing or realizing or appreciating the possible effect of the part about “full and final settlement of all the purchaser’s rights relating to the purchase of the property”. I am not prepared to find that the witnesses were untruthful when they said they had not noticed this part of the document or paid any or any special attention to it. Admittedly, they went to the defendant’s office to exercise the Option and to select a car parking space. For reasons stated above, there was nothing untoward and they had no reason to be on guard and to be suspicious about documents that were given to them to sign. It is therefore not improbable or incredible that they simply skimmed through the Settlement Agreement, without paying much attention about the contents or only paying attention to the description of the car parking space, or did not even bother to read at all. That said, however, it will mean that they are unable to discharge the heavy burden of showing they had acted with care in signing the document. On this ground, the plea of non est factum is not open to them.

Mistake

55.  Issue (3) concerns whether the Settlement Agreement is liable to be set aside on the ground of mistake. The plaintiffs based the plea on Taylor v. Johnson (1893) 151 CLR 422, a decision of the High Court of Australia, in which it held that (at 432):

“… a party who has entered into a written contract under a serious mistake about its contents in relation to a fundamental term will be entitled in equity to an order rescinding the contract if the other party is aware that circumstances exist which indicate that the first party is entering the contract under some serious mistake or misapprehension about either the content or subject matter of that terms and deliberately sets out to ensure that the first party does not become aware of the existence of his mistake or misapprehension.”

56.  The plaintiffs’ case is that they were mistaken in thinking that the Settlement Agreement only concerned the exercise of the Option. The fact that it was a potentially harmless occasion and they were told it was to do with the exercise of the Option would indicate that they were labouring under a mistake. Further, the fact that the document was drafted in a misleading manner, with the intended meaning buried among distracting words and sentences indicates the defendant was setting out to ensure that the plaintiffs did not become aware of the mistake.

57.  The objection of the defendant is that the plea as is now formulated has not been pleaded. Specifically, it is pointed out that there is no plea that the defendant knew of or had reason to know of the plaintiffs’ mistake or was deliberately engaged in conduct designed to inhibit discovery by the plaintiffs. I accept this is a valid objection. A plea of mistake based on the principles in Taylor v. Johnson is fact sensitive. It ought to be properly pleaded and particularised so that the responding party has a proper opportunity to consider the relevant circumstances and to investigate the evidence.

Other arguments

58.  I shall also deal briefly with two arguments raised by the defendant in connection with the pleas of non est factum and mistake. The first is that as the plaintiffs had obtained the benefit of the transaction, the pleas cannot be maintained in the absence of a claim for recission and indication of willingness to undo the whole transaction. The plaintiffs’ response is that recission should be granted despite there is not restitution in integrum because there is nothing to give back upon recission. This in turn involves the question of what benefit had flowed to the plaintiffs under the Settlement Agreement.

59.  Initially, the defendant says that the benefit that had flowed to the plaintiffs was the ability to choose a car parking space. This however could not be a benefit flowing from the signing of the Settlement Agreement because the selection of car parking space took place before the Settlement Agreement was signed. Additionally, the Option is to buy a car parking space. In the normal course, a buyer will have a choice to choose from the available stock. There is nothing in the Option Letter to suggest otherwise. It will be artificial to separate the right to purchase and the right to choose from the stock.

60.  It is also said by the defendant that it came under a commitment to assign a particular car parking space to the plaintiffs. However, the commitment cannot be an additional benefit to the purchaser because once a selection was made and agreed to by it, the defendant would be obliged to assign it.

61.  Another benefit said to be flowing under the Settlement Agreement is that the defendant had taken up the obligation to pay the legal costs for the formal agreement and assignment for the car parking space. However, in clause 15 of the formal agreement for the car parking space, which was executed subsequently, it was provided that the purchaser was responsible for the legal costs. It appears there was a similar arrangement with regard to the conveyance of the residential unit. Despite a provision in the formal Agreement (clause 14) providing that the costs of the agreement and assignment were to be borne by the purchaser, the plaintiffs had not been asked to pay for the costs involved. The plaintiffs suggest that all these are consistent with a collateral agreement that irrespective of the contractual provisions, the purchasers needed not pay for the legal costs so long as they retained the solicitors nominated by the defendant. The defendant refers on the other hand the fact that the 1^st plaintiff, who did not sign the Settlement Agreement, was given a bill for the legal costs of the car parking space.

62.  In my view, it is far from clear that the defendant had by the Settlement Agreement assumed the obligation of paying the legal costs or that the plaintiffs had been given the benefit of not having to pay. Although the 1^st plaintiff was given a bill for the legal costs, this only took place on 30 November 2005, more than a year later on, and after the present action had been brought. There is also no evidence that this bill had been paid or that steps had been taken to chase for its payment. At the same time, there is no evidence to show that the defendant had in fact paid for the legal costs involved. The plaintiffs’ solicitors had made enquiries with the solicitors handling the conveyance of the car parking spaces as to whether they had issued fee notes for the legal costs and whether they had been paid, but they were not answered. If the defendant had not paid for the legal costs, it could be because they had been waived or that they were not required to be paid. If it were the latter, than there is no benefit obtained by the plaintiffs. There is no evidence to show what in fact happened in this case between the defendant and the solicitors in question.

63.  The second argument is that not all the signatories had testified so that the claim of non est factum cannot be available to those plaintiffs who had not testified. In reply, Mr Shieh SC refers to the principle of joint promise. It is that where a promise is intended to be made by several persons jointly, if any one of those persons fails to enter into the agreement, or to execute the instrument of the agreement, there is no contract and no liability is incurred by such of them as have entered into the agreement: Halsbury’s Laws of England (Fourth Edition Reissue) vol.9(1) para.662. As the defendant was setting out to procure a joint deed of promise from the respective plaintiffs not to bring any claim, it is a joint promise. The release of one of them would mean there is no contract between the parties.

Conclusion

64.  For the reasons indicated above, the determination of preliminary issues is as follows:

(1)  On the true construction of the Settlement Agreement, the 2^nd to 7^th plaintiffs have not compromised, waived or settled their claims herein.

(2)  The doctrine of non est factum does not apply to render the Settlement Agreement void.

(3)  The Settlement Agreement is not liable to be set aside on the ground of mistake.

65.  There is liberty to the parties to apply for directions on the further conduct of the action.

66.  Applying the normal rule of costs follow event, there is an order nisi that the defendant pays the costs of the 2^nd to 7^th plaintiffs to be taxed if not agreed.