LUAN GANG v. SIMPSON MARINE LTD

CACV 142/2016

[2018] HKCA 228

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO 142 OF 2016

(ON APPEAL FROM HCA NO 107 OF 2011 AND

HCAJ NO 171 OF 2011)

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HCA 107 /2011

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 107 OF 2011

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AND

HCAJ 171/2011

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ADMIRALTY ACTION NO HCAJ 171 OF 2011

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J U D G M E N T

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Hon Kwan JA (giving the judgment of the court):

1.  This appeal is brought by the plaintiff, Luan Gang (“Luan”), against the judgment of Ng J handed down on 20 May 2016, by which his claims against the defendant, Simpson Marine Limited (“Simpson Marine”), were dismissed and judgment was entered for the latter against Luan on the counterclaim in the sum of $542,089 with interest and costs. The underlying dispute is in relation to the sale by Simpson Marine to Luan of a pleasure craft named Maggie newly built in Italy, being an “Azimut 43 Plus” (“the Yacht”), and the supply and installation by Simpson Marine of extra items on the Yacht.

2.  Luan claimed against Simpson Marine for misrepresentation, rescission of agreement, refund of the price and deposit, damages for breach of contract and reimbursement of inspection fees.  At the start of the trial, he abandoned his serious allegations about defects in the Yacht and misrepresentation and pursued only the claim of damages for late delivery of the Yacht pursuant to a term for liquidated damages and for inspection fees of $16,000.

3.  Luan filed a notice of appeal whilst acting in person on 15 June 2016.  A supplementary notice of appeal prepared by his counsel, Mr Benjamin Chain and Mr Chan Hei Ching, was filed on 24 May 2017.  His counsel confirmed to this court that the grounds of appeal in the supplementary notice superseded the grounds of appeal in the earlier notice.

4.  This appeal is concerned with a single point, namely, the proper interpretation of a contractual term described in the judgment as “Clause 3”.  Luan contended that the date of 12 July 2010 referred to in Clause 3 was the date when the Yacht should be delivered or handed over to him.  Simpson Marine’s construction, which was upheld by the judge, was that this was the date when the Yacht should arrive in Hong Kong, in readiness for the commissioning work to be carried out to put the Yacht in a deliverable state for eventual delivery to Luan.

Background

5.  The relevant background matters may first be stated as follows.

6.  The contract was signed between the parties on 21 December 2009 and consisted of the following documents: (1) a form of Simpson Marine headed “Order Contract” bearing Order Contract No.  SML (HK) 086-10 and signed by Simpson Marine as seller and Luan as purchaser; (2) a manuscript set of terms written by Angel Zhou (“Zhou”), the China General Manager of Simpson Marine, partly in simplified Chinese script and partly in English; (3) Appendix 1 which contained a list of the optional items to be installed; and (4) a typed sheet headed “Decor”.  This contract was referred to in the judgment as “the Principal Agreement”.  By the Principal Agreement, Simpson Marine undertook to procure and sell to Luan the Yacht with many optional extras installed, to ship the Yacht to Hong Kong, to perform commissioning work on arrival of the Yacht in Hong Kong and hand her over to Luan.

7.  The total purchase price of €664,104 was expressly stated to include not just the Yacht, the optional items in Appendix 1, but also these specific items:

Delivery to Savonna, commissioning, sea trials	€13,000
Shipping documents & custom clearance from Europe	€2,800
Sea delivery to La Spezia	€1,950
Shipping Cradle	€4,500
Shipping Insurance	€1,604
Ocean freight to Hong Kong	€31,500
Offloading and commissioning	€5,950

8.  The last item of offloading and commissioning referred to the work to be done on arrival of the Yacht in Hong Kong.

9.  The terms of payment as typed initially were 25% on contract signing and 75% on completion ex factory.  They were crossed out by hand and the words “100% payment” written.  There is no dispute that Luan had paid the purchase price in full of his own accord after signing the Principal Agreement.

10.  Another provision that should be noted read: “Delivery date (best estimate only – actual delivery depends upon ship availability: May 2010 ex factory Italy”.  This provision was complied with.  The Yacht was ready for delivery ex factory in Italy in May 2010, as evidenced by a report after inspection of the Yacht at the port of Genoa on 25 and 26 May 2010.

11.  Under the name and address of purchaser, the address of Luan was stated as an address in Marina Cove, Sai Kung, Hong Kong.

12.  The bilingual manuscript set of terms are of vital importance and read as follows:

“(1) 卖方需出具第三方驗船合格報告[1] seller have to issue inspection certificate. (“Clause 1”)

(2)  买方可选择委派驗船师前往意大利船厂验船[2] buyer can assign inspector to check boat before shipping.  (“Clause 2”)

(3)  2010年7月12日在香港到貨，晚到貨 0.5% 每天罰款.  (香港仔深湾游艇会)[3] boat deliver to HK before 12^th July 2010.  如迟[4]0.5% penalty per day.  Force majore [sic], weather, shipping company cancelled or client delays payment.  (“Clause 3”)”

13.  The Yacht arrived at the Kwai Chung container terminal in Hong Kong on 3 July 2010 and was sent to Simpson Marine’s facility at Aberdeen for commissioning.

14.  In the course of the commissioning and on 19 July 2010, Luan requested and Simpson Marine agreed to supply and install extra items for an additional price of $182,431.  This was referred to in the judgment as “the Supplemental Agreement”.  He paid a deposit of $120,000.  The description of the extras and their prices were set out in an invoice dated 12 August 2010 issued to Luan.

15.  Commissioning work on the Yacht and the installation of extra items under the Supplemental Agreement were completed on 12 August 2010.  On 18 August 2010, Mark Woodmansey (“Mark”), the Azimut Brand Manager of Simpson Marine, took Luan out on the Yacht for a sea trial.  The judge found the Yacht was in a deliverable state as at 18 August 2010, and it was placed at the disposition of Luan[5].

16.  Luan did not accept delivery.  By a letter dated 23 August 2010, his solicitors wrote to Simpson Marine rejecting the Yacht and seeking a refund of the purchase price.  The only ground of rejection given was that it was a term of the Principal Agreement that the Yacht should be installed with the joysticks listed in Appendix 1 and it was alleged that they had not been installed.  There was no mention of any delayed delivery.  It was only in a subsequent letter of Luan’s solicitors to Simpson Marine’s solicitors dated 27 October 2010 that they first referred to the date of 12 July 2010 as the agreed delivery date and complained of delayed delivery.

The trial and the judgment below

17.  At the trial, Luan and one Ms Xiao Han (“Xiao”) testified for the plaintiff and the defendants by counterclaim and Mark was the only factual witness who was called to testify for Simpson Marine.  Zhou’s witness statements were admitted by the judge as hearsay evidence.

18.  The judge had “considerable reservation” about Luan’s testimony and found him a “recalcitrant witness who is unwilling to acknowledge even the perfectly obvious fact, as long as it seems to him to be against his case”[6].  As for Xiao, the judge found her testimony of “marginal relevance to the resolution of the present dispute”, and noting that she was present when the Principal Agreement was entered into, remarked that “whilst testifying in court, Xiao showed very little memory of the events at which she was present.”[7]

19.  The judge found Mark a truthful witness and his credibility had withstood the test of cross-examination[8].  Zhou’s supplementary witness statement verified the content of Mark’s supplementary witness statement and the judge did not deal with her evidence separately in his judgment.

20.  On the proper construction of Clause 3, the judge held that the date of 12 July 2010 was only the date specified for the arrival of the Yacht in Hong Kong, rather than the date of delivery of the Yacht to Luan[9].  It is not in dispute that Simpson Marine was bound to send the Yacht to Luan in Hong Kong[10]. As a matter of construction, the Principal Agreement has not fixed a date for Simpson Marine to send the Yacht to Luan.  Under section 31(2) of the Sale of Goods Ordinance, Cap 26, where under the contract of sale the seller is bound to send the goods to the buyer but no time for sending them is fixed, the seller is bound to send them within a reasonable time.  In accordance with section 31(2), Simpson Marine was only bound to send the Yacht to Luan within a reasonable time after 3 July 2010, alternatively after 12 July 2010[11].

21.  As mentioned earlier, the judge ruled that the Yacht was in a deliverable state as at 18 August 2010 and it was placed at Luan’s disposition.  He accepted the evidence of Mark and the expert witness of Simpson Marine, Richard Lamble of Marine Surveys and Engineering Services Ltd, and found as a fact that a reasonable time for commissioning the Yacht was one to two months after its arrival in Hong Kong on 3 July 2010[12].  The judge also held further allowance should be made for the time required to carry out the work under the Supplemental Agreement[13].  He therefore concluded there was no delay and no breach of the Principal Agreement on the part of Simpson Marine for delivering the Yacht to Luan on 18 August 2010[14].

The proper interpretation of Clause 3

22.  It was argued on behalf of Luan before the judge and on appeal that on the true construction of Clause 3, the Yacht must be ready in all respects for delivery to Luan in Hong Kong on or before 12 July 2010.  Mr Chain referred this court to the relevant principles of the interpretation of contractual provisions in the judgment of Lord Neuberger of Abbotsbury PSC in Arnold v Britton [2015] AC 1619 at §§15 to 23.  Particular reliance was placed on §§15 and 21, which read as follows:

“15. When interpreting a written contract, the court is concerned to identify the intention of the parties by reference to “what a reasonable person having all the background knowledge which would have been available to the parties would have understood them to be using the language in the contract to mean”, to quote Lord Hoffmann in Chartbrook Ltd v Persimmon Homes Ltd [2009] AC 1101, para 14. And it does so by focussing on the meaning of the relevant words … in their documentary, factual and commercial context. That meaning has to be assessed in the light of (i) the natural and ordinary meaning of the clause, (ii) any other relevant provisions of the [contract], (iii) the overall purpose of the clause and the [contract], (iv) the facts and circumstances known or assumed by the parties at the time that the document was executed, and (v) commercial common sense, but (vi) disregarding subjective evidence of any party’s intentions. …”

“21. … When interpreting a contractual provision, one can only take into account facts or circumstances which existed at the time that the contract was made, and which were known or reasonably available to both parties. Given that a contract is a bilateral, or synallagmatic, arrangement involving both parties, it cannot be right, when interpreting a contractual provision, to take into account a fact or circumstance known only to one of the parties.”

23.  It is pertinent also to bear in mind the importance of the language of the relevant words to be interpreted and the natural meaning of the provision.  Thus in §§17 to 20, Lord Neuberger said “the reliance placed in some cases on commercial common sense and surrounding circumstances … should not be invoked to undervalue the importance of the language of the provision which is to be construed”; that the less clear the relevant words are, or the worse the drafting, the more ready the court can properly be to depart from their natural meaning, that is simply the obverse of the sensible proposition that the clearer the natural meaning the more difficult it is to justify departing from it; that “commercial common sense is not to be invoked retrospectively” and “the mere fact that a contractual arrangement, if interpreted according to its natural language, has worked out badly, or even disastrously, for one of the parties is not a reason for departing from the natural language”; and that while commercial common sense is a very important factor to take into account, a court should be very slow to reject the natural meaning of a provision as correct simply because it appears to be a very imprudent term for one of the parties to have agreed.

24.  Mr Chain focussed on the words in English “boat deliver” in Clause 3.  He submitted their ordinary and natural meaning is the handing over of the Yacht to Luan, prior to the specified date of 12 July 2010. He emphasised that that date was arrived at after negotiation between the parties.  Clause 3 should be construed from the perspective of the purchaser, and in the sense that it was meant to give Luan something which he would not otherwise have.  A date which merely provided for the arrival of the Yacht in Hong Kong would be of little consequence or concern to the purchaser, as he would not be able to have enjoyment of the Yacht until it was put in a deliverable state after commissioning.  Hence, the specified date of 12 July 2010 must be construed to mean the date which would allow the purchaser to have enjoyment of the Yacht, and commissioning in Hong Kong should be completed before 12 July 2010.

25.  In ascertaining the ordinary and natural meaning of Clause 3, we do not think it right to just focus on the words in English “boat deliver”.  These words must be read in the context of the entire provision in Clause 3, as well as other relevant provisions of the Principal Agreement.

26.  The first and obvious point, as made by the judge[15], is that the clause in which the words “boat deliver” appeared reads “boat deliver to HK before 12 July 2010”, not “boat deliver to Mr Luan before 12 July 2010”.  These words in English must bear the same meaning as the words in Chinese “2010年7月12日在香港到貨” (the agreed literal translation reads: “2010.07.12 at Hong Kong arrive cargo”), as both forms of wording in Chinese and English referred to a penalty of 0.5% per day for lateness, running from the same date of 12 July 2010.  It was clearly stipulated in the next clause in Chinese (“晚到貨 0.5% 每天罰款”; the agreed literal translation reads: “Late arrival cargo 0.5% penalty per day”) that the provision for liquidated damages is tied to the expression “late arrival cargo”.  The words in English (“boat deliver to HK”) and Chinese (“香港到貨”, meaning “at Hong Kong arrive cargo”) support the construction that Clause 3 was concerned with the sea carriage of the contract.  Neither meant delivery to the purchaser in terms of section 31(2) of the Sale of Goods Ordinance, which was to occur after the Yacht was put in a deliverable state, after post-arrival commissioning.

27.  Furthermore, the place for “arrive cargo” was stated as “Aberdeen Marine Club”, a place which Luan had no connection with but where Simpson Marine has an office in the building and a site at Aberdeen with a facility for commissioning and where the Yacht would be taken to straight after offloading from the ocean liner.  In contrast, there was no stipulation as to where the handing over of the Yacht to Luan should take place, which remained to be agreed between the parties, and is another pointer that Clause 3 was not concerned with the handing over of the Yacht to Luan.

28.  The latter part of Clause 3 provided for a number of instances which would exclude the operation of the liquidated damages clause.  They are force majeure, weather, cancellation by shipping company, and delays in payment by client. Apart from delays in payment by client, the other instances appeared to be concerned with sea carriage, rather than delays of the kind that might be anticipated to occur at the factory or during commissioning.  This is yet another pointer that Clause 3 was exclusively concerned with the sea carriage leg of the contract.

29.  As for the use of the word “deliver” in English, we are inclined to agree with Mr Alder, who appeared for Simpson Marine on appeal and below, that it is a natural use of the word in deploying this to refer to the delivery of the Yacht by the shipping line to Simpson Marine.

30.  On the basis of the above discussion, even without considering the requirement for commissioning in Hong Kong after the ocean voyage, the ordinary and natural meaning of the language of Clause 3 is sufficiently clear.  We agree with the judge that the construction of Simpson Marine is the correct interpretation.  There is no valid basis for the court to depart from the natural meaning of the relevant words.  Nor do we think the construction of Simpson Marine would militate against commercial common sense, as this construction would accord with the business risk that it was prepared to take in the particular circumstances and would meet the specific concern of the purchaser as to when the Yacht would arrive in Hong Kong[16]. That the purchaser might have been unwise or imprudent in entering into an arrangement which did not secure for him a fixed date for delivery of the Yacht to him is not a reason to reject the natural meaning of Clause 3 as correct.  As Lord Neuberger has stated in Arnold v Britton at §20: “The purpose of interpretation is to identify what the parties have agreed, not what the court thinks that they should have agreed.”

31.  We turn to the arguments relating to commissioning in Hong Kong.  Mr Alder argued that the date of 12 July 2010 could not be the date for the delivery of the Yacht to Luan, when one is to have regard to the commissioning work that would have to be done once the Yacht had arrived in Hong Kong.  Mark gave evidence, which was accepted by the judge, that such work would involve unpacking and fitting loose items, cleaning, fuelling, charging, testing fitted equipment and optional extras, holding initial customer and joint inspections, internal sea trial, checking for seaworthiness, remedying cosmetic and other defects and ‘snags’ such as loose fittings, ordering missing parts, registering, etc.  As commissioning is an elastic process, it is not surprising that there was no hard deadline for commissioning in the contract.  Whilst Simpson Marine was content to take a calculated risk that the Yacht would be completed and arrive in Hong Kong under a tight timetable (bearing in mind that the delivery date of the Yacht ex factory Italy in May 2010 was “best estimate only” and was not guaranteed to Simpson Marine), with the consequence that failure to do so would attract steep liquidated damages, it would make no commercial sense to suggest that the post-arrival commissioning, which would take one to two months, could be squeezed in before 12 July 2010.

32.  Mr Chain’s counter-argument is that Simpson Marine cannot rely on the requirement for commissioning in Hong Kong as the scope and possible duration of such work was not made known to Luan, who was a first-time buyer of a yacht, in the pre-contract negotiations[17].  He invoked the principle that when interpreting a contractual provision, one can only take into account facts or circumstances which were known or reasonably available to both parties.  He submitted that if commissioning had not been explained, an objective third party would not have knowledge of what it was about.  He further contended that to a layman, post-arrival commissioning could arguably be “a matter of hours, or 1 to 2 or a few days”.  To an objective third party with no knowledge of commissioning, it would not be considered unworkable for post-arrival commissioning to be completed before 12 July 2010.

33.  There was no evidence that the details of post-arrival commissioning work were explained to Luan in the pre-contract negotiations.  However, we do not accept that an objective third party would have laboured under the misapprehension that such work would be completed in “a matter of hours, or 1 to 2 or a few days”.  The Principal Agreement provided for a long sea voyage to be undertaken in bringing the Yacht from La Spezia in Italy to Hong Kong, during which it was put in a shipping cradle.  Common sense would inform the objective third party that the Yacht would need to be unpacked and cleaned, the many systems of a complex luxury motor yacht would need to be checked and re‑started, and issues that might arise from the sea voyage would need to be fixed.  A substantial fee of €5,950 was charged for offloading and post-arrival commissioning.  We do not think a deadline of 12 July 2010 for post-arrival commissioning to be completed would be considered workable on the facts and circumstances known or reasonably available to both parties.  To construe this date as providing for the deadline of completion of commissioning would be contrary to commercial common sense.

34.  Mr Chain sought to make some mileage from the judge’s rejection of Simpson Marine’s position that delivery ex factory Italy in May 2010 was delivery to the buyer for the purpose of section 31(2) of the Sale of Goods Ordinance.  He contended that Simpson Marine had sought to displace unsuccessfully the prima facie meaning of “boat deliver” in Clause 3, and as there was no earlier delivery in law as ruled by the judge, Simpson Marine had nothing to counteract the prima facie meaning.  There is nothing in this contention.  We also reject his contention that the judge was wrongly influenced by and had fallen into error in noting the provision about delivery in May 2010 ex factory Italy.  What the judge said[18] was that there is no inconsistency between the term of delivery date which provided for “best estimate only” ex factory Italy in May 2010, and Clause 3 which specified the date by which the Yacht should be physically in Hong Kong.  The judge is entirely correct.

35.  He also raised other arguments to support his construction of Clause 3, being the Supplemental Agreement, the evidence of Xiao, the lack of oral evidence from Zhou, the judge’s treatment of Luan’s evidence, the significance of Luan paying the full purchase price for the Yacht up front, the contra proferentem rule.  We do not find it necessary to deal with any of them.

Conclusion and order

36.  For the above reasons, we dismiss Luan’s appeal. There is no dispute that costs should follow the event.  We order Luan to pay the costs of Simpson Marine of this appeal.