Chu Yu Tin and Others v. Lo Kwok Hung

IN THE COURT OF APPEAL

1994, No. 228
(Civil)

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J U D G M E N T

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Godfrey, J.A.:

1. This is an appeal from a judgment of Rogers, J. who on 9 November 1994 dismissed with costs an action by three plaintiffs (two of whom are the appellants before us) against the defendant in the action, the respondent before us.

2. The appellants' claims are based on two agreements made on 3 April 1991.

3. By the first agreement, the respondent agreed to sell the 8th floor of an uncompleted office building, to be called Humphrey Plaza, Humphreys Avenue, Tsimshatsui, Kowloon, to the 1st appellant. By the second agreement, the respondent agreed to sell the 9th and 10th floors to the 2nd appellant. In each case, the purchase price was to be calculated by reference to the square footage of each floor.

4. Each agreement contained a provision in the following terms:

"6. Notwithstanding anything herein contained, the Vendor and the Purchaser agree that this Provisional Agreement will only be terminated if a package presale of the said proposed office building to a third party shall effect before the completion of the building. The Vendor will refund the Purchaser the Deposit plus a premium payment upon the termination of this Provisional Agreement."

5. The event contemplated by clause 6 having happened, a dispute arose between the parties over the sum which was to be paid by the vendor to each purchaser in respect of the "premium payment". It will be observed that the amount of the "premium payment" is unspecified and that the clause contains no machinery whereby the amount of the "premium payment" is to be ascertained. In these circumstances, the dispute between the parties resolves itself into a short question of construction: what, if anything, do the words "premium payment", as used in these agreements, mean?

6. There are a number of possibilities. The least attractive, but one from which the court must not shrink if it is compelled to adopt it, is to treat these words as void for uncertainty. Of course, the court declines to repose its head upon that easy pillow if it can avoid doing so but, where there is no alternative, that is what it must do. If these words cannot be given any sensible meaning, then the vendor is entitled to ride free from this obligation which he undertook, in the event which happened, to pay something to the purchaser over and above the amount of the deposit which was to be returned to the purchaser in that event. The court will strain, if possible, to give meaning to the words in order to avoid that result. But what meaning?

7. The vendor contends that the words "premium payment" mean "a payment of such amount as the vendor shall within his absolute discretion decide". I cannot adopt this construction. If the purchasers had been told that they were to be entirely at the mercy of the vendor in relation to what additional sum was to be coming to them, they would have immediately protested and said "no; we must have something better than that." This then is not something the parties can possibly have intended, and I would reject it, just as I would reject the judge's construction that the words mean a "bonus" or "gift" (which amounts to the same thing).

8. The purchasers contend that the words mean either "such a sum as would be fair and reasonable" or if (as I would hold) greater precision than that is needed if the words are to be given any sensible meaning, that they mean what sum the vendor would have had to pay the purchasers if he had terminated the agreements in breach of contract. But that is nonsense, for it would have then made no difference whether clause 6 had been inserted in the agreement or not. If the vendor had sold the building to somebody else over the heads of the purchasers, he would be liable for the identical sum by way of damages. The purchasers' contentions as to how the "premium payment" is to be calculated are therefore also unattractive.

9. Is there any help to be derived from the "factual matrix"?

10. The facts are a little more complicated than I have so far indicated. The vendor was not the owner of the uncompleted building. This was a company called Ribo Development Ltd. ("Ribo") in which he was a 30% shareholder. He would have been unable to stop the sale of the whole building even if (as it appears he did) he had objected to the sale. But, in my judgment, this carries the matter no further; nor do the facts, much urged on us, that the parties concerned were Chinese businessmen who trusted each other.

11. For all these reasons, I am driven to the conclusion that it would not be right to construe the words "premium payment" in the sense contended for by the purchaser. The suggestion that the words mean simply "fair and reasonable compensation" founders on the fact that there is no machinery, and no formula, provided for assessing what that fair and reasonable compensation would be. There is all the difference in the world between a provision for payment of "a market price"; or "a market rent"; or "a fair and reasonable management charge" (three examples canvassed before us) because those are objectively capable of quantification by evidence. The figure which ought to be paid as "compensation" here is not so objectively capable of calculation; it is entirely subjective.

12. There being, as I have said, no machinery and no formula to enable the court to ascertain what sum ought to be paid by the vendor to the purchasers, I am driven, with reluctance, to conclude that the parties did not arrive at an agreement sufficiently certain, in relation to the "premium payment", to have any legal effect at all. Indeed, I suspect (though it can be no more than a suspicion) that the parties in fact deliberately chose to leave the matter at large, hoping that, when the time arrived, a figure could be agreed which would be acceptable to all. That would have been an agreement to agree and not an arrangement to which the law could give effect.

13. For these reasons, I would hold that the provision in clause 6 of each of these agreements for "a premium payment" is void for uncertainty, and upon that ground I would uphold the decision of the judge to dismiss the action.

Bokhary, J.A.:

14. I, too, would dismiss this appeal.

15. The termination clause provides for payment of a premium. But it does not specify the amount of the premium. Nor does it provide how that amount is to be calculated.

16. With a view to overcoming those omissions, the appellant argues that the premium should be in a fair and reasonable amount. But how does one decide what is fair and reasonable?

17. The appellant says that compensation would be fair and reasonable. So the question becomes: compensation for what? The appellant's answer is compensation for loss of bargain.

18. Is there, I enquired of the appellant's counsel in the course of the argument, any difference between compensation for loss of bargain and compensation for breach of contract? The answer which I received was that there could be, but none was suggested here. And this is where, in my judgment, the appellant's argument breaks down.

19. The termination clause is to this effect: the provisional agreement will be terminated without any breach of contract if there is a package pre-sale. And, in my judgment, it runs counter to that to say that if the agreement is terminated on that basis - and therefore without any breach of contract - compensation would be payable in the amount which would be due if the termination had been in breach of contract.

20. That is not an intention which I can ascribe to these parties in common. It seems to me that ultimately the provision for payment of a premium fails as being void for uncertainty.

21. I come to that conclusion with the same reluctance as that expressed by my brother Godfrey.

Nazareth, V-P:

22. I agree with my Lords and for the reasons they have given would also dismiss the appeal.