YEN WING CHOI AND OTHERS v. MATCH POWER INVESTMENT LTD

CACV 5/2010

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 5 OF 2010

(ON APPEAL FROM HCA NO. 1829 OF 2005)

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Hon Rogers VP:

1.  I agree with the Reasons for Judgment of Le Pichon JA.

Hon Le Pichon JA:

2.  This was an appeal by the defendant from a judgment dated 24 December 2009 of Chu J on a trial of preliminary issues.  Those issues which concern the construction and effect of a document which has been described in the judgment below as a “Settlement Agreement” do not affect the first plaintiff.  The judge held that on the true construction of the Settlement Agreement, the second to seventh plaintiffs had not compromised, waived or settled their claims under the relevant agreements for sale and purchase of residential units (“the formal agreements”) in a development known as One Beacon Hill (“the development”) developed by the defendant, a wholly owned subsidiary of Cheung Kong (Holdings) Ltd.  At the conclusion of the hearing the appeal was dismissed.  The reasons appear below.

Background

3.  The plaintiffs are purchasers of various residential units in the development.  The plaintiffs and the defendant entered into provisional agreements and later the formal agreements on various dates between April and September 2003.  The plaintiffs commenced this action in September 2005 claiming damages and payment of interest arising out of the late completion of the development.  Under clause 4(1)(c) of the formal agreements, the development was to be completed on or before 31 December 2003 subject to extensions granted by the authorised person.  Such an extension was granted but only up to 29 February 2004.  The certificate of compliance was issued on 29 July 2004 and the residential units were assigned to the plaintiffs on various dates between 11 and 18 August 2004.

4.  Clause 4(4)(b) provided that if the purchaser does not rescind the agreement within 28 days from 31 December 2003 or the ‘extended date’ (being, in the present case, 29 February 2004) the vendor will pay the purchaser interest at the rate of 2% per annum above the prime rate specified by the Hongkong and Shanghai Banking Corporation Ltd from the day following the ‘extended date’ to the date of completion of the development.  It is the plaintiffs’ case that the defendant was in breach of clause 4(1)(c) and thus, is liable for damages including the payment of interest under clause 4(4)(b).

5.  While the formal agreements provided that the certificate of compliance would be conclusive evidence that the development has been completed, the vendor was not precluded from proving completion by other means.  The defendant denies that the provisions of clause 4(4)(b) are applicable and that dispute remains to be determined at trial which is yet to take place.

6.  The trial before the judge concerned the construction and effect of six identical documents signed by the second to seventh plaintiffs (but not the first plaintiff) which have been collectively referred to below as the Settlement Agreement which term I will adopt for the purposes of this judgment.  The preliminary issues related to the defendant’s defence to the second to seventh plaintiffs’ claims over the delayed completion that those claims had been fully and finally settled by their signing the Settlement Agreement.

7.  In outline, the main events leading to the signing of the Settlement Agreement were as follows.

8.  At the time the plaintiffs signed the provisional sale and purchase agreements, they also signed an undated letter issued by Cheung Kong Property Development Ltd as sales agent for the defendant (“the option letter”) under which the defendant granted each of the plaintiffs an option to purchase a car parking space in the development at the price of $1, subject to certain conditions.  One of the conditions for the exercise of the option was the completion of the purchase of the relevant residential unit.

9.  As earlier noted, the plaintiffs completed the purchases of their respective residential units between 11 and 18 August 2004.  The sequence of events that followed was the same for each of the plaintiffs although the events themselves may have taken place on different days.  Each of the plaintiffs was contacted by the defendant’s staff within a few weeks of the relevant assignment to attend the defendant’s office for the purpose of selecting a car parking space and was asked to bring along the option letter.  The plaintiffs attended the defendant’s office accordingly, on various dates between 30 August and 30 September 2004.

10.  At the defendant’s office, after the car park had been selected, the defendant requested the return of the option letter for cancellation.  A copy stamped with the word “cancelled” was handed back and, on that occasion, several documents were presented for signature.  The first was a provisional agreement for the purchase of the car parking space that had been selected.  The second was a “Warning to Purchasers” reminding the relevant plaintiff, inter alia, that the provisional agreement was a binding agreement and that he had a right to instruct an independent solicitor if he so wished instead of the vendor’s solicitor to conduct the purchase.  The third document was the Settlement Agreement which the plaintiffs (other than the first plaintiff) signed.

11.  It is relevant to record the first plaintiff’s explanation (given in the affirmation of Lee Shui Pui Shirley dated 25 May 2006) for not signing the Settlement Agreement.  Upon noticing the words “full and final settlement”, the deponent astutely queried whether it meant that the first plaintiff’s claim to damages and interest would be compromised.  After consulting her senior, the defendant’s staff answered in the affirmative.  The first plaintiff’s request to take a copy away so that legal advice could be taken was refused.  But when asked if the option could be exercised without signing that Settlement Agreement, the defendant’s staff, after absenting herself to consult her senior again, returned some 15 minutes later and confirmed that the first plaintiff could do so.

12.  Subsequently, the plaintiffs signed formal sale and purchase agreements for the car parking spaces followed by assignments of the same to the plaintiffs.

13.  It is relevant to note that prior to mid-July 2004, the same firm of solicitors had acted for the plaintiffs and the defendant.  In mid-July, that firm ceased to act for the plaintiffs.  By August 2004, separate solicitors had been retained by the second, third, fourth, sixth and seventh plaintiffs but not the fifth plaintiff.  Those solicitors wrote to the defendant’s solicitors either demanding interest under clause 4(4)(b) or reserving their rights to make claims arising out of the delay in completing the development but without issuing legal proceedings against the defendant.  While the bundles do not include any replies to the solicitors’ letters referred to, in view of §42 of the judgment, it seems to have been accepted by the plaintiffs that they were aware that the defendant’s solicitors had replied, denying delay.

14.  In the case of the fifth plaintiff, her evidence at trial was that prior to attending the defendant’s office to select the car parking space, she had made various phone calls to the defendant seeking payment of interest for the delayed completion.

15.  The Consumer Council came to be involved at about the same time, having received complaints regarding the delay in the completion of the development.  It seems that correspondence ensued between the Consumer Council, Cheung Kong Property Development Ltd and the defendant.  The bundles include a letter dated 6 September 2004 from the Consumer Council to the defendant referring to the defendant’s letter of 17 August 2004 from which it appears that while the defendant's stance was that the purchasers are not entitled to claim interest, the defendant nevertheless offered to resolve the complaints amicably.  Since this action which commenced in September 2005 is funded by the Consumer Protection Litigation Fund, it is likely that the plaintiffs had complained to the Consumer Council and so would have been informed of the defendant’s stance by the Consumer Council.  It was not until October 2004 that Cheung Kong Property Development Ltd took the stance that the plaintiffs’ claims had been fully and finally settled, based on the Settlement Agreement.

16.  On the trial of the preliminary issues, the judge found in favour of the plaintiffs holding that on its true construction, the Settlement Agreement did not have the effect of compromising, waiving or settling the claims of the second to seventh plaintiffs.  She further held that the doctrine of non est factum did not apply to render the Settlement Agreement void and that it was not liable to be set aside on the ground that mistake.

This appeal

17.  The defendant challenged the judge’s construction of the Settlement Agreement.  As this is a critical document, I set out in full.  It reads:

“ 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”

It is relevant to note that although a red wafer appears above the signature of each of the second to seventh plaintiffs, the judge found that it was not affixed at the time the Settlement Agreement was signed but was added later.  In other words, it was an attempt to dress up the Settlement Agreement as a deed when it was not.

18.  In determining the true construction of the Settlement Agreement, the judge framed the relevant question in §38 in these terms:

“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.”

19.  The judge answered the question posed in the negative.  Her reasons appear in §§39 to 45 of the judgment which can be summarised as follows.  The purpose of the attendance at the defendant’s office was to select a car parking space.  What took place at the defendant’s office corresponded with the purpose of the occasion as related by the defendant’s staff and understood by the plaintiffs.  No mention had been made of the plaintiffs’ complaints or demands whether at the time they were asked to attend the defendant’s office or when they were there.  A reasonable man with knowledge of the relevant factual matrix would not have cause to connect the occasion and the exercise of the option with the dispute over the delayed completion and would not have read the sentence as meaning the compromise of the dispute or claim.

20.  In §35 of the judgment, the relevant factual matrix surrounding the signing of the Settlement Agreement was summarized as follows:

“ (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.”

As I understand it, §35 is not controversial and Mr Yu made no criticism of it as such although (3) should be read subject to §14 above.

21.  Although not specifically enumerated as part of the factual matrix, in §42 of the judgment, the judge did make specific reference to the ongoing dispute between the parties relating to the plaintiffs’ entitlement to claim interest for the delay:

“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. ”

22.  In view of the preceding paragraph, in so far as there was any suggestion that the judge did not consider the ongoing dispute relating to interest as part of the factual matrix, I disagree.  Further, the fact that the parties had not engaged in discussions to resolve the dispute is undeniable and has not been challenged.  While evidence of prior negotiations is inadmissible for the purpose of construing the Settlement Agreement, in my view, the fact that there had been no negotiations of any kind must form part of the relevant factual matrix.

23.  Mr Yu SC who appeared for the defendant focused on the sentence:

“By signing this letter, the car parking space purchase option letter between the purchaser and Match Power Investment Ltd is hereby exercised as the full and final settlement of all the purchaser’s rights relating to the purchase of the property.”

He submitted that the meaning is clear and as there was an ongoing dispute between the parties regarding the claim for interest, it must mean a settlement of all disputes between the parties that had already surfaced at the date of the Settlement Agreement and, thus, were known to the parties.  It was further submitted that otherwise the Settlement Agreement would not have served any purpose and that could not have been the parties’ intention.

24.  In my view, there are three possible ways of reading that sentence.  The first is to give it a strict literal interpretation.  The second is to read it as meaning that the purchaser’s entitlement to a car parking space which arose out of his having purchased the unit would be extinguished as the judge has done.  The third is some form of hybrid as advocated by Mr Yu, which is that only some, but not all, of the purchaser’s rights under the sale and purchase agreement of the unit would be extinguished.  He sought to limit the “rights” to those that were known to the parties to be disputed at the time of the signing of the Settlement Agreement.

25.  The strict literal interpretation would mean that all the purchaser’s rights relating to the purchase of the property would be extinguished.  Such rights would encompass all the rights the purchaser had under the sale and purchase agreement of the residential unit and not only his right to interest and damages for delay but would include, for example, his rights under clause 28(2) of the formal agreement.  That provides as follows:

“(2) The Vendor undertakes with the Purchaser to use his best endeavours to enforce all defects and maintenance obligations under all contracts relating to the construction of the Development in so far as such defects relate to or affect the Property or the common parts and facilities of the Development.”

The notion that the purchaser would have agreed, inter alia, to release the defendant from using its best endeavours to enforce defects and maintenance obligations is so absurd that the strict literal approach cannot possibly be the correct approach to reading the Settlement Agreement and must be rejected.

26.  As to the second approach, as I understand the argument, it was said that as the sentence in question does not in terms refer to the option to buy a car parking space, it cannot be read as meaning rights relating to the car parking space since the car parking space had yet to be assigned to the purchaser.  Mr Yu further prayed in aid what he submitted was a ‘definition’ of the term “property” in the document itself as meaning the residential unit and the car parking space.

27.  With respect, Mr Yu’s approach, focusing on a single sentence of the document and subjecting each word to microscopic examination, neglects the context to be derived from reading the document as a whole, having regard to the relevant factual matrix.  As regards his objections to the second approach, I agree with Mr Shieh SC (who appeared for the second to seventh plaintiff’s) that the option was exercised and the right to be assigned the car parking space acquired when the parties entered into the provisional agreement and not by their signing the Settlement Agreement.  Further, I do not consider that the document sought to define the term “property”.  The fact that it refers to both the car parking space and the residential unit is unexceptional once it is appreciated that without purchasing the residential unit, there would have been no question of any right or entitlement to purchase a car parking space for a nominal consideration.  The option was the ‘sweetener’ for entering into the provisional agreement and came with the purchase automatically.  It was part and parcel of the deal.  Put differently, the two went in tandem.  The entire document is about the car parking space and, in my view, that is the clear impression conveyed by the two substantive paragraphs of the document read as a whole.

28.  As to Mr Yu’s criticism that if that were the proper construction, there would be no purpose in having the Settlement Agreement, the answer lies in the second full paragraph which relates to the payment of legal costs.  In short, if the purchaser were to use the solicitors designated by the defendant, the defendant would bear the legal costs for preparing the formal agreement and assignment for the sale and purchase of the car parking space.

29.  Given the factual matrix, in particular, the matters mentioned in §§15, 21-22 above and the full text of the Settlement Agreement, there is little scope for adopting the hybrid approach which is highly artificial and tailored to suit the defendant’s arguments.  In my view, the judge correctly construed the meaning of the Settlement Agreement and its effect and I see no basis for impugning the reasons she gave for her conclusion.

30.  Since this court concurred with the conclusion of the judge on the issue of construction, it was not considered necessary for counsel to address us on the matters raised in the respondents’ notice.

Postscript

31.  At the outset of the appeal hearing, Mr Yu fairly acknowledged that his client’s case was “short on merits”.  If anything, that was an understatement given that the Settlement Agreement was no accident: rather, it was a carefully drafted document, apparently designed and seemingly calculated to achieve an end which proved to be unsuccessful.

32.  The first plaintiff’s account of what happened at the defendant’s office, summarized in §11 above, is telling.  Why did defendant treat the second to seventh plaintiffs differently from the first plaintiff?  The inference is irresistible that the defendant went about setting “a trap for the unwary”, seeking to derive an advantage over the less alert or sophisticated of the purchasers.  Instead of seeking to achieve its objective in an open and above-board manner, by using clear and unambiguous language, affording the purchasers an opportunity to consult their solicitors and dealing directly with the solicitors who had already advanced claims on their behalf, it sought to do so surreptitiously, under the guise of an innocent looking document and denying purchasers the opportunity to consult lawyers, even descending to the level of going behind the backs of the solicitors who had already asserted claims on behalf of their clients.

33.  Given that the desired objective was the extinguishment of the plaintiffs’ claims to damages and interest, claims which they were entitled to make given the terms of the formal agreements, the criticism is directed at the unscrupulous manner in which the defendant sought to do so.  It is regrettable that a wholly-owned subsidiary of a major participant in the property development sector should have considered such conduct appropriate.  Recently, the practices of property developers have been the subject of severe criticism.  This case is hardly likely to enhance the image of property developers.  The defendant’s conduct offends the sense of fair play and what is acceptable commercial behaviour that, not unreasonably, may be expected of mature industry participants in a responsible, civilized and fair society.

Hon Lunn J:

34.  I agree with the judgment of Le Pichon JA and wholeheartedly endorse the thoroughly deserved criticisms made of the conduct of the defendant in paragraphs 32 and 33 of her judgment.