FAR EAST DRUG (BVI) CO LTD v. FIRST PACIFIC CO LTD

FACV No. 20 of 2005

IN THE COURT OF FINAL APPEAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

FINAL APPEAL NO. 20 OF 2005 (CIVIL)

(ON APPEAL FROM CACV NO. 166 OF 2004)

_________________

____________________

________________________

J U D G M E N T

________________________

Mr Justice Bokhary PJ:

1.  I agree with the judgment of Mr Justice Chan PJ.

Mr Justice Chan PJ:

2.  This appeal involves the construction of a clause in a commercial contract which had the effect of barring a claim for breach of warranties unless particulars of the alleged breaches were served before a certain date.  The question to be decided is: what was that date? 

The facts

3.  By an agreement dated 6 December 2001, the appellant (the Plaintiff) agreed, among other things, to purchase from the respondent (the Defendant) the entire issued share capital of a company.  Various warranties were given by the Defendant to the Plaintiff.  In this action, the Plaintiff claims against the Defendant for alleged breaches of these warranties.  In defence to the claim, the Defendant relies on Clause 8D of the agreement contending that the Plaintiff’s claim had been barred. 

4.  Clause 8D provides:

“Claims against the (Defendant) 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 (Defendant) before the date which falls 18 months after the date of this Agreement and such claim shall be treated as withdrawn unless proceedings in respect thereof have been commenced and served on the (Defendant) before the date which falls 21 calendar months after the date of this Agreement.”

5.  It is not disputed that the Plaintiff gave particulars of the alleged breaches of warranties to the Defendant on 6 June 2003.  The Defendant says that this was one day too late while the Plaintiff says this was just in time.

The Courts below

6.  At a hearing of an Order 14A application on whether the Plaintiff has brought its claim in time, Stone J ruled in favour of the Plaintiff.  On appeal, the Court of Appeal (Woo VP, Yeung JA and Barma J) overturned that ruling and gave judgment for the Defendant dismissing the Plaintiff’s action with costs.  Hence the present appeal.

Correct approach

7.  In the courts below, the parties had referred to various authorities which dealt with different statutory or contractual “time” provisions.  It is, however, accepted before us that the correct approach is the one described by Megaw LJ in Carapanayoti v Comptoir Commercial Andre [1972] 1 Lloyd’s Rep 139 at 144 where he said:

“I think it is right to approach the question of 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 thewords used, in their context, on the basis of the ordinary and natural meaning of those words.”

The issue in this case

8.  The parties acknowledge that Clause 8D is not a clause which one usually finds in an ordinary commercial agreement, notwithstanding that it was a very important provision to both of them.  They agree that this clause specifies a date (the relevant date) before which particulars of breaches of warranties must be given: they must be delivered by the Plaintiff to the Defendant before “the date which falls 18 months after the date of the agreement”.

9.  It is also common ground that in order to identify the relevant date, the first thing to do is to compute the 18 month period from the date of the agreement which was 6 December 2001 and to ascertain what the last day of this period was. 

10.  There was a lot of discussion in the courts below as to whether the corresponding date rule should be applied in this exercise.  Although the Plaintiff’s printed case argued that the Court of Appeal fell into error by applying the “so-called corresponding date rule rather than considering the meaning of the clause in question as a matter of logic”, Mr Charles Sussex SC for the Plaintiff now accepts that the rule is relevant in the computation of time in the present case.  However, he submits that the Court of Appeal had misapplied this rule.  He argues that upon the true construction of Clause 8D, the Plaintiff was entitled to a period of 18 clear months to give particulars of alleged breaches of warranties and the relevant date was 7 June 2003.  Mr Benjamin Yu SC, leading Mr Roger Beresford for the Defendant, disagrees and says that it was 6 June 2003.

Corresponding date rule

11.  As I mentioned above, the parties are at idem that the corresponding date rule can be applied to ascertain when the period of 18 months expired.  The corresponding date rule was summarized by Lord Diplock in Dodds v Walker [1981] 1 WLR 1027 at 1029 as follows:

“ … when the relevant period is a month or specified number of months after the giving of a notice, the general rule is that the period ends upon the corresponding date in the appropriate subsequent month, i.e. the day of that month that bears the same number as the day of the earlier month on which the notice was given.”

12.  He described it as “a simple rule” which is “easy of application”.  Cockburn CJ in Freeman v Read (1863) 4 B. & S. 174 at 184 considered it  “in accordance with common usage, and with the sense of mankind”. It is based on the logic that there cannot be two days of the same number in a calendar month.  See Wightman J in Freeman v Read at 185.  It also conveniently avoids arguments which may arise in the case of a short month.  See Templeman LJ in Dodds v Walker [1980] 1 WLR 1061 at 1066.

13.  This rule is generally useful, but the answer in each case, as in the present case, depends ultimately on the construction of the specific provision in the relevant statute or contract. 

14.  It is common ground that month here means calendar month.  Applying the corresponding date rule, the 18 month period after 6 December 2001 ended on 6 June 2003. 

What was the relevant date?

15.  While Mr Sussex accepts that the last day of the 18 month period was 6 June 2003, he submits that the date which fell 18 months after 6 December 2001 was in fact 7 June 2003.  This is so becauseupon a true construction of Clause 8D, he says, the Plaintiff was entitled to have 18 clear months to give the required particulars.  His submissions are quite subtle and run as follows.

16.  The passage from one day to the next day, that is, the passing from 24.00 hours of the first day to 00.00 hours of the following day, is instantaneous.  Thus, two dates can only be separated by a period or periods of 24 hours, that is to say, by clear day or days and hence, so the argument continues, the day which falls one day after today is not tomorrow, but the day after tomorrow.  And if Clause 8D had provided for a date which fell one day (instead of 18 months) after 6 December 2001, there must be a gap of one clear day between 6 December 2001 and that date.  This was, he argues, the test applied by Lord Tenterden in Pellew v Inhabitants of Wonsford 9 B. & Cr. 134 which was cited with approval in Webb v Fairmaner (1838) 3 M. & W. 473.  Mr Sussex submits that if this is correct, there is no reason why the same should not apply where the intervening period is a matter of weeks or months since they are merely multiples of days.  Applying this logic to the present case, he says, the Plaintiff should be entitled to 18 clear months after 6 December 2001, and so, if the period of 18 months ended on 6 June 2003, the relevant date should be 7 June 2003.  Hence, the Plaintiff was within time in giving the required particulars on 6 June 2003 (i.e. the day before the relevant day).

17.  With respect, this submission cannot be accepted.  First, the word “clear” is not used in Clause 8D.  As a matter of construction, one simply cannot take 18 months to mean 18 clear months unless the context requires or permits such a construction.  But the context in the present case neither requires nor permits it to be construed in such a way.  This is in fact illustrated by the copy of “the Draft Pro-forma Contractual Terms for the supply of Legal Services by Barristers to Solicitors 2004” on which Mr Sussex seeks to rely in support of his arguments.  Clause 11 of the draft provides thus:

“In the event that any of the fees charged in a Fee Note are not paid to the Barrister within 1 (one) month after the date of Prescribed Letter 1, then such of those fees which are outstanding from time to time shall carry simple interest at the Stipulated Rate from the date which falls 1 (one) month after the date of Prescribed Letter 1 to the date of payment thereof.” (Italics added)

18.  Counsel argues that this clause anticipates the lapse of one clear month before interest can be charged on unpaid fees; and the same therefore applies to Clause 8D which has a similar wording.  It is not for us to construe that draft agreement.  But Mr Sussex’s argument draws me into saying that there appears to be a vital distinction between Clause 11 of that draft and Clause 8D in the present case: the first part of Clause 11 allows a whole month after the Prescribed Letter for the solicitor to pay the barrister’s outstanding fees and hence in the second part of the clause, interest only starts to accrue on the day after the lapse of one clear month.  This is not the situation with Clause 8D.  In my view, this example cannot assist Mr Sussex.  On the contrary, it appears to be against him.  It demonstrates the importance of context in the construction of the relevant contractual provision: while the context of Clause 11 of the draft Pro-forma requires construing one month to mean a clear month, no such context exists in the case of clause 8D. 

19.  Secondly, Mr Sussex’s argument which is based on his analysis of the passage from one day to the next is unsound.  The requirement of a period of a clear day or days between two dates does not accord with common usage or the understanding of ordinary people going about their everyday business.  Very few people are consciously aware of the fact that conceptually there is no time gap between one day and the next and most people do not have this in mind in conducting their affairs, let alone thinking in terms of clear days in marking their diaries unless they are clearly and expressly told this is to be the case.  This is even more so when they enter into contractual relationship with others.  They would have to make it clear in their contract to this effect.  If, to quote one of the examples given by Mr Sussex, two persons have a lunch appointment on a day which falls “one day after next Monday”, what would they or indeed ordinary people think it would be: next Tuesday or next Wednesday?  Of course they would say next Tuesday.

20.  This “metaphysical argument” as Lord Diplock described it in Dodds v Walker [1981] 1 WLR 1027 was squarely rejected by the learned Law Lord (see p.1029).  It is clearly inappropriate when it comes to ascertaining a relevant date in connection with a period of time (whether provided in a statute or chosen by the parties in a contract) which is to be reckoned in months. 

21.  Thirdly, according to its ordinary and natural meaning, the phrase “the day which falls a period of time after a certain date” means the day on which the period expires; it means that that day comes or occurs on the last day of that period, falling exactly on that very day, not the day before or the day after, similar to the situation in E. J. Riley Ltd v Eurostile Ltd [1985] 1 WLR 1139.  If a person is asked what is the date which falls one year after his wedding day, he would certainly feel surprised to be told that it is not his anniversary but the day after that.

22.  In my view, Clause 8D does not permit the construction contended for by the Plaintiff.  The date which falls 18 months after the date of the agreement (which was 6 December 2001) was 6 June 2003.

Any ambiguity?

23.  Contrary to what was stated in paragraph 20 of his printed case, Mr Sussex accepted in oral argument that there is no ambiguity in Clause 8D.  However, he still seeks to rely on what Lord Esher MR said in In Re North [1895] 2 QB 264 at 270:

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

24.  This statement was applied by the judge but its applicability appears to have been rejected by the Court of Appeal as it was not even mentioned in its judgment.  In my view, this statement does not assist Mr Sussex.

25.  First, such an approach would be more appropriate where as in In re North, the court has to make a choice between two competing meanings, both capable of being adopted.  This is not the case here.  It must be noted that Lord Esher’s comment was made in the context of a bankruptcy statute where the finding of an act of bankruptcy might lead to at least a stigma if not also adverse social and financial consequences and hence it is not surprising that such an approach was adopted in those circumstances.  There is also, in my view, no ambiguity in the present case.  Clause 8D is clear and I see no reason why it should not be given its ordinary and natural meaning.  And if there is no ambiguity in the provision in question, the mere fact that it is open to arguments does not give rise to any ambiguity.  Nor should the court create any.  See Bolands Ltd v London & Lancashire Fire Insurance Co Ltd [1924] AC 836 at 848 and Ailsa Craig Fishing Co Ltd v Malvern Fishing Co Ltd (The Strathallan) [1983] 1 WLR 964 at 966. 

26.  Secondly, even if such an approach were to be adopted, it would be difficult in the present case to say whether Clause 8D is more for the benefit of the Plaintiff or the Defendant.  On the one hand, it has the effect of excluding the Defendant from liability for breach of warranties and that is for the Defendant’s protection; and on the other hand, it allows the Plaintiff time to give particulars of its allegations and that is to the Plaintiff’s benefit.  Mr Sussex submits that since we are only dealing with that part of the clause which allows time to the Plaintiff to raise its claim, we should consider it in a way which is for the benefit of the Plaintiff.  I do not accept this argument; the effect of the whole provision and not only part of it must be considered.  So this approach does not avail the Plaintiff.

Conclusion

27.  In my opinion, one is inevitably drawn to the conclusion that upon a true construction of Clause 8D, the relevant date was 6 June 2003.  That is the intention properly to be attributed to the parties.  The Plaintiff’s particulars of alleged breaches of warranties had to be served on the Defendant before that day.  Service on that day was therefore too late.  The Plaintiff’s claim had been barred under that clause.

28.  For the reasons discussed above, the appeal should be dismissed with costs.

Mr Justice Ribeiro PJ:

29.  I agree with the judgment of Mr Justice Chan PJ.

Sir Noel Power NPJ:

30.  I agree with the judgment of Mr Justice Chan PJ.

Lord Woolf NPJ:

31.  I agree with the judgment of Mr Justice Chan PJ.

Mr Justice Bokhary PJ:

32.  The Court unanimously dismisses the appeal with costs.