BOND STAR DEVELOPMENT LTD v. WANG XIAO QUN

HCSA 24/2017

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

SMALL CLAIMS TRIBUNAL APPEAL NO.24 OF 2017

(ON APPEAL FROM SCTC 2022 OF 2016)

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J U D G M E N T

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Introduction

1.  This is an appeal of Mr Wang against the determination of an adjudicator[1] dated 3 March 2017 (“the Determination”). By the Determination, the adjudicator allowed the claim of Bond Star Development Ltd (“the Company”) against Mr Wang for a total sum of HK$13,267.84 being the outstanding service charge and the licence fees under a written licence agreement dated 20 May 2013 (“the Licence Agreement”) in respect of a carpark known as Carpark No.1 located at Mount East, No. 28 Ming Yuen Western Street, North Point (“the Carpark”). The Company being the owner of the Carpark and indeed the developer of Mount East was the licensor whereas Mr Wang was the licensee under the Licence Agreement.

2.  This court granted Mr Wang leave to appeal on 5 July 2017 and Mr Wang is allowed to pursue his appeal relating to the outstanding service charge in the sum of HK$13,264.84 only (“the Service Charge”). It is common ground that Mr Wang has not paid the Company the Service Charge or any part thereof.

3.  The core issue is whether the parties ever agreed that Mr Wang was liable to pay the Service Charge under the Licence Agreement and this involves an interesting question of construction relating to a provision in the Licence Agreement.

The controversial provision

4.  Throughout the Licence Agreement, there is only one single reference made to the Service Charge. Clause 1 of the Licence Agreement read as follows,

“The Licensor agrees to make available to the Licensee the area as specified in the Second Schedule (“the Area”) for parking of a motor vehicle as set out in the Third Schedule (“the “Motor Vehicle”) for the term set out in the Fourth Schedule (“the Term”) upon the Licensee agreeing to pay to the Licensor an annual licencee fee set out in the Fifth Schedule (“the Licence Fee”) exclusive of Rates and Service Charge payable on the 1^st day of each and every calendar year throughout the Term without any deduction of the first of such payment to be made on or before the signing of this Agreement.”   (emphasis added)

5.  The Area means the Carpark, the Motor Vehicle means Mr Wang’s private car with a specified car plate number, the term commenced from 20 May 2013 to the date when Mr Wang ceases to be the registered owner of a flat on the 36^th Floor of Mount East (“the Flat”) which he acquired from the Company by an assignment dated 20 May 2013 and the Licence Fee is HK$1.00 per year. There is, however, no definition of the Service Charge in the entire Licence Agreement.

Background facts

6.  By way of background, the Company is the developer of Mount East. It executed a Deed of Mutual Covenant and Management Agreement dated 29 June 2011 (“the DMC”) with one Mr Chung as the first purchaser and Country House Property Management Limited (“Country House”). By the DMC, Country House was appointed the Manager of Mount East undertaking the management of, among other things, Mount East. The owners of Mount East are liable to pay and contribute to the remuneration of Country House and management expenses under the DMC.

7.  Moreover, under the DMC, the Company remains to be the owner of certain retained area which included the Carpark in accordance with a plan annexed to the DMC.  The same plan was annexed to the Licence Agreement. Altogether 223 undivided shares and management shares are allotted to the retained area as a whole without any specific assignment made to the Carpark.

The adjudication

8.  In the Amended Defence filed by Mr Wang, he maintained that before the signing of the Licence Agreement, the Company had not mentioned any service charge. He pleaded that there had been no agreement between the Company and him in respect of the Service Charge and so the Company could not charge him the same unilaterally. In his witness statement, he maintained that when he signed the Licence Agreement, he did not pay much attention to the Licence Fee exclusive of rates and service charge and thought that he only needed to pay to the Government the rates and the Licence Fee was just a nominal figure for which the Company would not seriously demand payment. For the Service Charge, it had never been mentioned before and there had been no agreement whatsoever reached in respect thereof.

9.  The adjudicator heard no debate about the construction of Clause 1. She rejected the evidence of Mr Wang that the Company had not mentioned to him about the Service Charge and that he had no knowledge of his obligation to pay the Service Charge on the basis that he was legally represented when he signed the Licence Agreement. She also accepted the evidence of the Company that the Service Charge was payable by the Company to Country House and the amount payable could vary. Hence, the amount of the Service Charge payable was not specified in the Licence Agreement. By the same token, the amount of the rates payable was not specified, either.

10.  The adjudicator further rejected the contention of Mr Wang that the Company was entitled to impose an obligation on him to pay Service Charge unilaterally. She did not agree that it was done unilaterally and she concluded that the Licence Agreement clearly stipulated that Mr Wang was required to pay Service Charge. She reasoned that if Mr Wang had disagreed with this obligation, he could and should have instructed his lawyer to raise objection to the Company before signing the Licence Agreement.

11.  Ms Miranda Li, counsel for Mr Wang, argues that the phrase “exclusive of Rates and Service Charge” (“the Phrase”) in Clause 1 alone on its true and proper construction could not impose an obligation on Mr Wang to pay the same. Ms Connie Lee, counsel for the Company, though not shying away from the fact that Clause 1 could have been better drafted, contends that it is sufficiently clear in Clause 1 that the parties agreed that it was the onus of Mr Wang to pay the Rates and Service Charge.

Relevant principles

12.   It is helpful to remind myself of the instructive dictum of Ma CJ in Fully Profit (Asia) Ltd v Secretary for Justice (2013) 16 HKCFAR 351 at §15 before proceeding to consider the proper construction of Clause 1. Ma CJ had this to say,

“We have been referred to the very well-known statement of principle regarding the construction of contracts contained in the speech of Lord Hoffmann in Investors Compensation Scheme Ltd v West Bromwich Building Society, to which can be added the judgment also of Lord Hoffmann NPJ in Jumbo King Ltd v Faithful Properties Ltd. What emerges from these cases – and other authorities on contractual interpretation – is the overall importance of context when construing contractual terms. The statements of principle in Investors Compensation Scheme and in Jumbo King refer time and again to the relevant background against which the relevant contract and contractual terms must be viewed. It is in my view not particularly helpful in most cases to refer to the ‘ordinary and natural meaning’ of words because, as very often experience tells us, there can be much debate over exactly what is the ordinary or natural meaning of words. The surer guide to interpretation is context. Here, I would just add that in the area of statutory and constitutional interpretation, it is context that is key; context is the starting point (together with purpose) rather than looking at what may be the natural and ordinary meaning of words.

13. Ms Lee also refers this court to the summary of the construction principles found in the speech of Lord Hoffman in Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896 at pp. 912H-913F:

“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. [1997] 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 Antaios Compania Naviera S.A. v. Salen Rederierna A.B. [1985] A.C. 191, at 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.”

Analysis

14.   In the Determination, it is plain that the adjudicator’s conclusion that the Licence Agreement clearly stipulated that Mr Wang was required to pay Service Charge is not based on any implied term or collateral contract. She found it as an express term upon a true and proper construction of Clause 1 though she did not expressly say so. There was no other route for the adjudicator to reach her conclusion and Ms Li does not suggest otherwise.

15.   The Phrase, and indeed the entire Clause 1, have to be interpreted in its contractual context. The Licence Agreement is a commercial document. Ms Lee pertinently refers to Multi-Link Leisure Developments Ltd v North Lanarkshire Council [2011] 1 All ER 175. Lord Hope DP had this to say at §11:

“The court’s task is to ascertain the intention of the parties by examining the words they used and giving them their ordinary meaning in their contractual contacts. It must start with what is given by the parties themselves when it is conducting this exercise. The effect is to be given to every word, so far as possible, in the order in which they appear in a class in question. Words should not be added which are not there, and words which are there should not be changed, taken out or moved from the place in the clause where they have been put by the parties.”

16.   The Phrase is preceded by another phrase “The Licensee agreeing to pay the Licensor the Licence Fee annually”. The Licence Fee is HK$1 and it must be a nominal amount having no bearing on its actual, market or ratable, value.

17.   The addition of the Phrase cannot be an inadvertence. They were added to Clause 1 for a reason. They appeared immediately after the obligation of Mr Wang to pay the Licence Fee. Naturally it should relate to the payment of Rates and Service Charge.

18.   The ensuing question is which parties was obliged to pay Rates and Service Charge. Two matters are of significance and can form part of the factual matrix against which Clause 1 should be interpreted. First, property owners in Hong Kong including the Company are liable to pay the Government rates.  This is hardly controversial.

19.   Next is that Service Charge is the management fee payable by the Company to Country House as the Manager of Mount East. The adjudicator found that Mr Au Yeung of the Company had told Mr Wang this before the execution of the Licence Agreement. This is a finding of fact, to which Mr Wang does not challenge on appeal.

20.   Such a liability of the Company to pay Country House the management fee is also borne out in the DMC admitted in evidence. Thus, this is the background knowledge available to the parties before their execution of the Licence Agreement.

21.   Against this background, given the primary obligation of the Company to pay Rates to the Government and Service Charge to Country House, it appears to a reasonable man that it is more likely than not that the parties intended that Mr Wang should pay such Rates and Service Charge in the stead of the Company in addition to the Licence Fee. Otherwise, there is no need to make any mention of them at all. Under the Licence Agreement alone, without the Phrase, Mr Wang could not be obliged to pay anything to the Government and Country House or reimburse the Company for such payments.     

22.   The Licence Fee was clearly a concessionary charge only. Even if the parties intended that the Company was prepared to make an even bigger concession for whatever reason and did not demand any reimbursement by Mr Wang for its payment of Rates and Service Charge, there is no reason why the phrase “inclusive of Rates and Service Charges” was not used and quite on the contrary the Phrase having an opposite meaning was used instead.

23.   In my judgment, the meaning of the phrase “exclusive of” is plain enough and should be equated with “in addition to” in the Phrase. This is a viable interpretation without rewriting the Licence Agreement. Mr Wang should pay annually the Licence Fee in addition to Rates and Service Charge on a true and proper construction of the Phrase and Clause 1 as a whole.

24.   Ms Li highlights to this court that there is no detail of the Service Charge payable given in the Licence Agreement and that the Carpark has not been assigned any shares for the calculation of the management fee payable. She is correct.

25.   However, in my view, this does not make it more likely that the parties intended that Mr Wang was not liable to pay the same under the Licence Agreement. So long as the nature of the Service Charge payable had been made clear to Mr Wang before the execution of the Licence Agreement and he accepted this obligation to pay the Service Charge by signing the Licence Agreement, the actual amounts to be paid could well be computed afterwards and there should be no difficulties in ascertaining the amount payable. There is no challenge to the quantum of the Service Charges at all.

26.   Ms Li also makes the obvious point that it was not expressly stated in the Licence Agreement that Mr Wang was obliged to pay the Service Charge. As rightly submitted by Ms Lee, this is a non-point.  If the words are clear, there is no room for dispute: Lewison, The Interpretation of Contracts (6^th Edn) at §2.13.

27.   Ms Lee asks this court to take into account the fact that the Licence Fee was only HK$1 per year, that carparks in Hong Kong are valuable commodities and that only Mr Wang was able to give notice to terminate the Licence Agreement as long as he remains to be the registered owner of the Flat. She submits that in light of all these matters, the commercial sense dictates that the Company would not make further concession on Rates and Service Charge.

28.   I cannot accept this submission. How much concession the Company decided to make is a commercial decision. Both the assignment of the Flat and the Licence Agreement should be taken as a whole for consideration. In the absence of all the relevant evidence, I am not in a position to make any comment let alone conclusion on what the commercial sense in these transactions should be.

29.   I should also make it clear that the position of Mr Wang stated in his witness statement that he accepted to pay Rates but not Service Charge under the Licence Agreement is irrelevant though it is indeed odd. This court is not guided by subjective intent of the parties in the exercise of contractual construction.

30.    Lastly, I do not think that the principle of contra proferentem, vaguely raised by Ms Li, can assist Mr Wang. This court can readily reach a conclusion on the construction of the Phrase without any need to rely on such principle.

Conclusion and order

31.    For the reasons given above, the conclusion of the adjudicator cannot be faulted and she did not err in law at all. I agree that Mr Wang should pay Rates and Service Charge to the Company in addition to the Licence Fee.

32.    Accordingly, the appeal must be dismissed. Costs should follow the event and I make an order nisi that Mr Wang should pay the Company its costs of the appeal, to be taxed if not agreed.

33.    The order nisi will become absolute in the absence of any application to vary the same by summons within 14 days from the date hereof.

34.    It remains for me to thank both counsel for their helpful assistance.