CHEUNG YUET KIU v. NEW FUNG DEVELOPMENT LTD. and CHUNG TIM FAT (Third Party)

HCA4660/97

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATION REGION

COURT OF FIRST INSTANCE

ACTION NO. 4660 OF 1997

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J U D G M E N T

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1. On 13th November 1996, the Defendant and the Third Party signed a Provisional Sale and Purchase Agreement to buy a flat in Kowloon. The completion date under that Provisional Sale and Purchase Agreement is said to be:

"Completion shall take place on 28 February 1997 or within 21 days from the date of notification of assessment of premium issued by the Director of Housing, whichever is the latest."

2. On 26th November 1996, the parties signed a Formal Agreement of Sale and Purchase, with both sides being represented by solicitors. In Clause 33 of that Agreement, it is stated that the Agreement supersedes the Provisional Agreement dated 13th November 1996. The completion date under the Formal Agreement is specified in the 3rd Schedule, and is, in fact, the same as what was specified in the Provisional Sale and Purchase Agreement, namely "28 February 1997, or within 21 days from the date of notification of assessment of premium issued by the Director of Housing, whichever is the later".

3. On 18th January 1997, the Defendant entered into another Sale and Purchase Agreement with the Plaintiff to sell to the Plaintiff the same property at a higher price, thereby making a profit. On 10th February 1997, a letter was signed by a representative of the Housing Department assessing the premium payable to lift the restriction on alienation of the property. The said letter was not posted by the Housing Department until 13th February 1997.

4. On 17th February 1997, the Third Party received a notice from the post office to go and collect the letter from the Housing Department, and two days later, on 19th February, the Third Party collected the letter from the post office. On the following day, 20th February 1997, the Third Party, by his solicitors' letter, notified the Defendant of the fact of assessment of the premium by the Director of Housing. In fact, the solicitors, on 20th February, enclosed a copy of the letter from the Housing Authority to the solicitors acting for the Purchaser - the Defendant. On 27th February 1997, the Defendant informed the Plaintiff of the assessment of the premium by the Housing Department.

5. There then followed some correspondence between the solicitors for the Third Party and the solicitors for the Defendant regarding the meaning of Clause 36 in the Formal Agreement. Clause 36 deals with the matters related to the premium, namely, who should pay the premium, and what should happen if, by the completion date, the Housing Authority had not finalised their assessment of the premium.

6. In Clause 36, it is stated:

"Provided that if the Hong Kong Housing Authority has not finalised their assessment of the Premium payable on or before the completion,"

- which is agreed was 28th February -

"then the Vendor shall give a written notice to the Purchaser to that effect and notwithstanding herein otherwise provided, the completion shall be postponed to 21 days after the date of notification of assessment of premium issued by the Director of Housing and that such notice has been given by the Vendor's Solicitors to the Purchaser's Solicitors that the Premium has been assessed by the Hong Kong Housing Authority."

7. On 3rd March 1997, Albert Leung & Co, the solicitors for the Third Party, wrote to the solicitors for the Defendant and pointed out that the notification of assessment of premium issued by the Director of Housing was issued on 10th February, and therefore, the completion date should be 21 days therefrom, namely the day of the letter, namely 3rd March 1997.

8. The solicitors for the Third Party also gave notice that if the transaction was not completed by 5 pm that day, then the Purchaser - the Defendant - would be treated as in breach of the Agreement for Sale and Purchase, and the Vendor - the Third Party - would proceed to terminate the Agreement and forfeit all deposits paid without prejudice to the Vendor's rights to claim for further damages for breach of contract against the Purchaser.

9. On the same day, the solicitors for the Purchaser replied to say that the interpretation of Clause 36 by the Third Party was totally unacceptable, and that the Defendant would only complete in accordance with the terms and conditions of the Agreement for Sale and Purchase. The solicitors then said:

"However, on an entirely without prejudice basis, we will complete the transaction as per the terms of the undertaking letter enclosed."

10. The undertaking letter which was enclosed sets out the cheques which were being sent - which were split cheques - and seeking certain undertakings from the solicitors for the Vendor. As it happened, the letter and the cheques were not despatched to the solicitors for the Vendor until 44 minutes after 5 pm, which was the agreed completion time. As a result, the third party - the Vendor - forfeited all the deposits which had been paid up to date by the Purchaser - the Defendant. Because the Defendant was not able to complete his deal with the Plaintiff, the Plaintiff took out proceedings against the Defendant, and the Defendant joined the Third Party as a third party.

11. The Defendant, on an Order 16 application, sought judgment from the Third Party which Master Woolley declined to do. Today's hearing was an appeal against Master Woolley's decision, and at today's hearing, the Defendant has asked the Court to enter judgment in his favour against the Third Party. Mr Au-Yeung, appearing for the Third Party, has asked the Court to say that because the clause relating to the completion date is not clear, and because there appears to be some inconsistency between the English version and the Chinese version contained in the Provisional Agreement, the Court should, notwithstanding Clause 33 in the Formal Agreement, look at the Chinese version in the Provisional Agreement to try and determine the intention of the parties.

12. One of the reasons for his asking the Court to do that is that his client, in his affidavit, stated that he did not understand English. Mr Au-Yeung has submitted that the correct construction of the clause in question should be that time, namely the 21 days, should start running from the date of the letter signed by the Director of Housing assessing premium, provided that the parties are given a reasonable time to fulfil their commitments under the contract. And he has calculated that from the day that the Third Party informed the Defendant of the assessment of the premium, namely 20th February 1997, until the completion date of the contract, namely 3rd March, the Defendant had 11 days to perform his part of the contract, and therefore Mr Au-Yeung maintains that this was a reasonable time for the Defendant to fulfil his obligations, and that this is the correct construction of the clause regarding the date of completion, i.e. that the completion should be on 3rd March, provided that the parties have a reasonable time to discharge their obligations.

13. He has asked the Court to say that there are triable issues which should be allowed to go to trial because the factual matters which will be relevant to the trial judge would be to show the subsequent conduct of the parties which he says, relying on the case of Amalgamated Investment & Property Co. Ltd. (in Liquidation) v. Texas Commerce International Bank Ltd. (1982) 1 QB 84 and, relying on the judgment of Lord Denning in the Court of Appeal, may give rise to an estoppel, and that it is available not so much as to construe the contract, but to see how the parties themselves acted on the contract, and that under the guise of estoppel, the Court can prevent either party from going back on the interpretation that they themselves gave to it.

14. I have had quoted to me by Mr Lin, appearing for the appellant, "Chitty on Contracts", 27th Edition, page 583, paragraph 12-046, which says:

"The rule that words must be construed in their ordinary sense is liable to be departed from where ... if they were so construed, they would lead to a very unreasonable result or impose upon the contractor a responsibility which it could not reasonably be supposed he meant to assume."

15. He has also quoted to me the "Interpretation of Contracts" by Ken Lewison, 2nd Edition, page 1.04, the headnote of which, under "Objectivity and Subjectivity" says:

"In attempting to reach a conclusion as to the presumed intention of the parties, the court would generally adopt an objective approach, that is to say that it will consider what would have been the intention of reasonable persons in the position of the actual parties to the contract."

And then at page 1.05, quoting from the judgment of Lord Goff in the President of India v. Jebsens (UK) Ltd and Others (1991) 1 Lloyds Report 1:

"For once a clause is embodied in a commercial contract, it has simply to be construed in its context from the objective point of view of reasonable persons in the shoes of the contracting parties. Of course it has to be construed sensibly, and regard has to be had to its practical effect. But the objective interpretation is of paramount importance in commercial affairs ..."

16. Then, another quotation from Lord Devlin in his lecture, "Morals and the Law of Contract", where Lord Devlin said:

"Normally, evidence is not admissible of conversations or correspondence leading up to the contract; they cannot be used to amplify or modify the final document. That document will speak for itself. For the common law has its eye fixed as closely on the third man as on the original parties; and the final document is the only thing that can speak to the third man."

17. And lastly, at page 1.05 of the same book, there is another quotation from the judgment of Hardie Boys J, in the case of Quainoo v. NZ Breweries Ltd, (1991) 1 NZLR 165:

"But where the words are susceptible of more than one meaning, even if one of them be an unusual meaning the Court is entitled to look, indeed it must look, at the surrounding circumstances in order to ascertain from them, if it can, what the intention was. This is quite different from listening to the parties' version of what they each meant."

18. Mr Lin also relies on what was stated by the House of Lords in Whitworth Street Estates (Manchester) Ltd v. James Miller & Partners Ltd, (1970) AC 583, and quoted in the judgment in Amalgamated Investment and Property Co Ltd v. Texas Commerce International Bank Limited, quoted by Lord Denning in his judgment:

"... it is not legitimate to use as an aid in the construction of the contract anything which the parties said or did after it was made. Otherwise one might have the result that the contract meant one thing the day it was signed, but by reason of subsequent events meant something different a month or a year later."

19. I am of the view that subsequent conduct by the parties in this case will not assist the Court in the construction of this clause. And indeed, as the House of Lords said in the case quoted above, subsequent conduct would not be admissible to assist - evidence of subsequent conduct would not be admissible to assist the Court in its bid to find out what the intention of the parties was.

20. What the Court is entitled to do is to look at the surrounding circumstances without actually asking the parties what they thought a particular clause meant. Mr Lin has submitted that looking at the surrounding circumstances, what is obvious is that the parties must have intended that they each should have 21 days after receiving notification of assessment to finalise things in order for them to decide their obligations under the contract.

21. I take the view that I should only look at what was stated by the parties in the Formal Sale and Purchase Agreement signed on 26th November 1996. My view is that completion should be within 21 days from the date of notification of assessment of premium issued by the Director of Housing. Now, the 21 days should start running, in my view, not from the date when the Director of Housing signed the letter, but, at the very earliest, from the date of despatch of that letter by the Director of Housing to the party concerned. In this case, the earliest date when the time should start to run would be 13th February 1997, when the letter was despatched via the post office.

22. That interpretation would accord, in my view, with what is stated in the relevant clause, that the time should be 21 days from the date of notification. Notification to my mind must mean that a party - the party concerned - is notified of the fact of the assessment of the premium by the Director of Housing. If one were to reckon from the date of the letter signed by the Director of Housing, then one could have the situation where the letter is never despatched, or it is despatched so late that the party concerned is hardly given any time (a) to pay the premium, and (b) to try and comply with his obligations under the contract.

23. My interpretation of that clause is reinforced by what is stated in Clause 36 in the Formal Agreement, where, under the proviso which should apply, when, if the Housing Authority has not finalised the assessment by the completion date, then it is stated that the completion shall be postponed to 21 days after the date of notification of assessment; and also, that such notice is being given by the Vendor's solicitors to the Purchaser's solicitors that the premium has been assessed. So it certainly indicates the position where the Housing Authority has not finalised its assessment by the completion date.

24. It was envisaged by the parties to the contract that the parties should have 21 days to complete the assignment, and that the 21 days should start to run from the date of notification of assessment of premium, and also from the date notice is given by the Vendor's solicitors to the Purchaser's solicitors. So if the premium was assessed on one day, and the Purchaser's solicitors are not notified until a subsequent day, the 21 days should only start to run from the date of the Purchaser's solicitors receiving notice from the Vendor's solicitors.

25. I have stated earlier that my view is that the Formal Agreement supersedes what is contained in the Provisional Agreement by virtue of Clause 33. But if Mr Au-Yeung is right that the best way of trying to determine the intention of the parties in this case is to look at what they agreed at the time of the signing of the Provisional Agreement, which was the clause written in Chinese, which presumably is a language that both contracting parties understood, the Chinese version mentions 28th February or whichever is the later date, 21 days after the notification letter of the Housing Authority is issued. "Issued" is translated in the Chinese version as "fat chut". Now, to my mind that must mean, at the very earliest, the date of the sending of the letter, as opposed to the date of signing of the letter. If the completion date is 21 days from, at the earliest, 13th February 1997, then quite clearly the completion date, according to the Sale and Purchase Agreement, would have been on 6th March 1997.

26. Therefore, in my judgment, the Third Party was not entitled to forfeit the deposits paid by the Defendant.

27. Accordingly, I allow the appeal, and enter judgment against the Third Party in favour of the Defendant in the terms of (i) to (viii) of the Inter-Partes Summons dated 5th February 1998. Costs of the Third Party proceedings, including the costs of this appeal, and the application under the Inter-Partes Summons dated 5th February 1998 be paid to the Defendant by the Third Party, to be taxed if not agreed. There will also be Certificate for Counsel insofar as the hearing before Master Woolley on 27th March 1998 is concerned.