Lam Mean Soon v. Luk Fuk Enterprises Ltd

HCA000198/1980

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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Coram: Macdongall, J.

Date of Judgment: 7th November, 1980

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JUDGMENT

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1. The plaintiff in this action claims the sum of $350,000 as money had and received by the defendant company to the use of the plaintiff.

2. He claims that he paid two sums, namely $300,000 and $50,000, as deposits in respect of provisional orders, made subject to contract, to purchase the 2nd and 3rd floors respectively of Nathan Centre, Kowloon, and that as no binding contract was ever executed there was no consideration for the payment of the deposits and that therefore they must be repaid.

3. The defendant claims that the provisional orders constitute binding written agreements for the sale and purchase of the two floors, and that as the plaintiff failed to proceed with the sale and purchase in each case and, or in the alternative, failed in each case to enter into a formal sale and purchase agreement expressly provided for in the written agreements, it was entitled to forfeit both deposits. The defendant contends that his claim is reinforced by the existence of an express clause in each provisional order to the effect that non-compliance with the provisions of the order shall render any deposit subject to forfeiture.

4. The only evidence put before me by the parties was the two provisional orders. The outcome of these proceedings therefore hinges on the interpretation of these documents.

5. Basically, each provisional order is a pro forma document with provision for the insertion of particulars.

6. The first half of the standard form consists of a number of spaces with text in both English and Chinese beside each space to indicate what particulars are to be inserted therein. These particulars include the name, address and occupation of the intended purchaser, a description of the property, its price, the terms of payment and the deposit paid. The second half of each order consists of a number of clauses expressed both in English and Chinese which set forth certain terms or stipulations. With the exception of clause 3, which contains a blank space to enable the insertion of the name of the office or firm at which the formal sale and purchase agreement referred to in that clause is to be entered into, all clauses are complete in the sense that they do not call for any insertions or additions.

7. At the bottom of the form spaces are provided for the signatures of the intended purchaser and the landlord.

8. The two major provisions in each document upon which its interpretation depends are clause 3 and the terms written in Chinese characters inserted in the blank space alongside the heading "Purchase Price & Terms of Payment".

9. The English version of clause 3 is:

10. The certified translation of the Chinese version of clause 3 is:

"This order is only of temporary nature. Both parties must attend and sign a separate formal Sale and Purchase Agreement at the office of Solicitors in order to be binding. The said Agreement must be signed and completed within three days after the issue of this order or at a date specified by the said Solicitor. In the event of non-compliance of the provisions of this order by the Intended Purchaser the Company shall have the right to forfeit any deposits or payments paid and this order shall be null and void."

11. The terms inserted in the space adjacent to the heading "Purchase Price and Terms of Payment" are in handwritten Chinese characters only The parties did not include any English version of these characters. The certified translation of the characters inserted on one of the documents is:

"a deposit of three hundred thousand dollars is to be paid first, and first instalment of 5% (less deposit of three hundred thousand dollars) and signing of formal Sale and Purchase Agreement within one week at Messrs. Chu & Lau Solicitors. The balance is to be paid as follows, one million on 10th February, 1980; six hundred and seventy one thousand and six hundred dollars on 10th March, 1980; 5% on 10th June, 1980; 5% on 10th October, 1980; 10% within 7 days upon the issuance of the Occupation Permit. The balance thereof to be paid by a bank mortgage loan repayable between three to seven years by instalments. All expenses to be borne by the purchaser. Date of completion of construction: to be completed (within) 18 months of sunny working days after the construction of the foundation. If fail to complete within limit stated above an interest of 15% per annum on the amount paid as compensation is payable."

12. The handwritten insertion in the corresponding space on the other document, although concerned with the payment of different sums, is couched in similar terms. Such differences as exist between the two inserted clauses are not, in my view, material to the determination of this case.

13. Mr. Robert Tang, who appeared for the plaintiff, submitted that it is clear from an examination of each document in its entirety that the parties intended that the Chinese version only should govern their agreement.

14. Mr. Daniel Fung, who represented the defendant, contended that it is not apparent ex facie that the parties had any such intention. He submitted that the court must look at the whole document and use both languages to assist it in interpreting its terms.

15. Although it is true that apart from the plaintiff's name, which is stated in both English and Chinese, and dates and numbers, the particulars inserted in the spaces provided, including those particulars relating to purchase price and terms of payment, are expressed in Chinese alone, I am unable to find anything in the document to justify Mr. Tang's submission. Indeed, on the contrary, the fact that the parties deleted both the English and Chinese versions of clause 5 in each document but left the English versions of all the other clauses intact, suggests that they did not intend to exclude the English versions from use as a vehicle for the interpretation of each agreement. Furthermore, after the insertion by the parties of the particulars in Chinese relating to purchase price and terms of payment, there was no space available for the insertion of an English version. The absence therefore of an English version of these particulars does not of itself suggest that the parties were unconcerned with the English version of other clauses.

16. Mr. Tang submitted however that, even if this is so, since the documents were prepared by the defendant for signature by the plaintiff, wherever there is a conflict between the English and Chinese versions, or indeed where there is any ambiguity, the maxim verba fortius accipiuntur contra proferentum applies, and the version most favourable to the plaintiff must prevail.

17. With that basic proposition underlying his argument, Mr. Tang made the following submissions and observations:

(1) that the characters in bold type at the head of each document which had been deleted by the parties did not appear in the certified translation. Both he and Mr. Fung agreed that the translation of those characters is "Cheong Po Hing Building" and that Mr. Cheong Po Hing is one of the signatories appearing in the space in each document adjacent to the words "Landlords Signature(s)". The forms had therefore been printed originally for use in connexion with the Cheong Po Hing Building but had been adapted by the parties for their agreement relating to the two floors of the Nathan Centre.

(2) that the heading of the document reads "Provisional Order for Purchase of Flats", not "Provisional Agreement for Purchase of Flats", and that throughout the document the word "order" as opposed to "agreement" is used. This, according to Mr. Tang, suggests that the parties had not intended to enter into a binding agreement and that the payment of the deposits is at most equivocal and does not in any way lessen the force of that suggestion.

18. In this connexion Mr. Tang no doubt had in mind the words of Warrington L.J. in Chillingworth v. Esche⁽¹⁾:

"In the first place, he says that the document itself acknowledges the payment of the deposit, but in my opinion the payment of the deposit is a neutral fact, and assists neither party. It may be paid by way of guarantee that the purchaser will not break off negotiations without good cause, or it may be paid ..... in anticipation of a binding contract. In any event, the mere fact that a deposit has been paid does not help me."

19. That the word "order" in the context in which it appears in both documents imports something less than a binding agreement is borne out, according to Mr. Tang, by the wording, both in English and Chinese, of clause 3 of each document.

20. He contends that the words "..... this provisional order is issued subject to a formal Sale and Purchase Agreement ......." clearly indicate that each arrangement between the parties is "subject to agreement (contract)", which is a term of art, and that in accordance with the reasoning in Branca v. Cobarro⁽²⁾, neither arrangement is a binding agreement but merely an agreement to contract.

21. Although the agreement in Branca v. Cobarro⁽²⁾ was held to be a binding agreement, this was so because the Court, in interpreting the words "This is a provisional agreement until a fully legalised agreement, drawn up by a solicitor and embodying all the conditions herewith stated, is signed", held that the words "until" in that context clearly meant that what was called "a provisional agreement" was going to have some efficacy until a certain event happened; in other words, the efficacy of the document was not made in any sense conditional on the happening of that event.

22. Mr. Tang submitted that it is significant that the vital word "until" does not appear in either document in the instant case. Instead, the words "subject to agreement", being words of condition or stipulation, are used. He argued that therefore there can be no doubt that the two documents were not intended to be binding agreements. Mr. Tang further argued that his submission is reinforced by the fact that despite the wording of the document in Branca's case, Tucker L.J., in using the words "turn the scale in favour of the defendant", was of the view that even with the use of the word "until" the position was finely balanced.

23. Presumably Mr. Tang would seek to derive support for his contention from the words of Warrington L.J. in Chillingworth v. Esche⁽¹⁾ at page 110 of the report of that case:

"It has been undoubted ever since the decision of Sir George Jessel in Winn v. Bull that the words "subject to the preparation and approval of a formal contract" in a document prevented the document from being held to be a final agreement of which specific performance could be enforced, and it has been the practice of estate agents to insert these words to prevent parties being imposed upon. In many cases it is important to avoid the disastrous results of entering into open contracts, and I think it would be most mischievous to throw any doubt on the effect and meaning of such expressions. I do not overlook what was said by Lord Sterndale in Rossdale v. Denny in this Court: "I am far from saying that there may not be an unconditional offer and acceptance of a binding contract although the letters may contain the words 'subject to a formal contract,' but certainly those words 'subject to a formal contract,' but certainly those words do point in the direction of the offer or acceptance being conditional. I do not think it can be put higher than that; I think he is well founded in saying that the general trend of the decisions has been where those words occurred, to hold that the offer or acceptance was conditional." But it seems to me that too much importance has been attributed to those expressions of Lord Sterndale, and I think what he meant to say was that the words in question indicate in themselves no binding bargain, and are merely conditional, but that there might be other circumstances which would induce the Court not to give them that meaning in a particular case."

24. As I understand it, Warrington L.J.'s interpretation of the meaning of Lord Sterndale's words is that the phrase "subject to a formal contract", or words of a similar nature, do not conclusively resolve the matter as there might be other indications to lead a court not to treat those words as being words of condition. These other indications, if such exist, are to be found within the four corners of the document falling for interpretation.

25. As to the certified translation of the Chinese version of clause 3, Mr. Tang places especial reliance upon the last five words of the sentence "Both parties must attend and sign a separate formal Sale and Purchase Agreement at the office of Solicitors in order to be binding." He contended that the only rational inference that can be drawn from these words is that the parties did not intend the provisional order to be anything more than agreements to contract.

26. In Mr. Tang's contention therefore both the English and the Chinese versions of clause 3 conclusively resolve the matter in the plaintiff's favour.

27. Assuming that the first paragraph of the Chinese version of clause 3 represents the intention of the parties, consideration must be given to the first sentence in that paragraph, namely, "This order is only of temporary nature." If the order was not intended to be of a binding nature it seems to me legitimate to ask why that sentence was included. No doubt Mr. Tang would answer that query by saying that notwithstanding that an interpretation adverse to his contention might be drawn from that sentence, the matter must be resolved in the plaintiff's favour by the application of the rule contra proferentum.

(3) that the words "Provisional Order" and "Intended Purchaser" that appear in the pro forma documents clearly indicate that the two arrangements were merely of a tentative nature.

28. I am unable to see how Mr. Tang can derive any support for his contention from the use of the word "provisional" as that very word was used in the agreement which the Court of Appeal in Branca v. Cobarro⁽²⁾ held to be a binding contract. I assume that Mr. Tang means that the conjunction of the word "provisional" with the word "order" suggests a tentative rather than a provisionally binding agreement. This conclusion appears to me to be far from inescapable. Lord Greene MR at page 855 of the report of Branca v. Cobarro⁽²⁾ said:

"[This document] is expressed as an agreement. The provision for payment by the purchaser is worded in this way: "Alfredo Branca undertakes to pay" and in the concluding clause the word "Agreement" is used to describe the document. It is perfectly true that words such as "agree" are by no means conclusive of the question whether the parties were intending a contract or had only arrived at a state of negotiation. Too much weight must not be attached, therefore, to the words I have mentioned. But, I think, in the particular context of this document they are not without importance."

29. The court, therefore, should not rivet its attention on one word and determine the nature of the document on that word alone, but that no matter how unambiguous that word may be when used in isolation, it should regard the whole document so as to see the context in which the word was used and thence perceive the intention of the parties.

30. To my mind the use of the word "order" in a document that is signed by both parties does not suggest that the document is not an agreement.

31. As to the words "Intended Purchaser", it is significant that after their single initial appearance at the beginning of each document they do not reappear but are replaced by the word "purchaser". In fact, four of the five clauses in each document refer to "purchaser". The remaining clause makes no reference to either "intended purchaser" or "purchaser". I do not think it is arguable that the word "purchaser" refers to the "intended purchaser" if and when he enters into a formal sale and purchase agreement, because clause 4 specifically refers to him as purchaser in circumstances that relate to the absence of a formal agreement. On a consideration of each document as a whole therefore, I do not think that the one isolated use of the words "intended purchaser" in each document gives rise to the legitimate inference that each document represents a mere negotiation in contemplation of a contract coming into existence at some future date.

(4) that although there is a specific provision embodied in the second paragraph of clause 3 of each document that "any non-compliance of the provisions of the order by the purchaser shall render any deposits or payments paid by him to be absolutely forfeited to the Company and this order shall be absolutely determined.", if that apparently clear provision cannot stand together with the first paragraph of that clause then it must yield to the latter and the interpretation most favourable to the plaintiff should be adopted.

32. Although the first letter of the initial word of the second paragraph of clause 3 is not capitalised, both counsel agreed that this is not a matter of any significance and that it should be treated as if it were a capital letter. Indeed, in the English version of clause 3 both paragraphs are distinctly separated and independent. Moreover in the Chinese version it can be seen that a separation of the two paragraphs is achieved by the insertion of a zero, and that, as in the English version, both paragraphs are capable of independent existence.

(5) that it is in the plaintiff's favour that Tucker L.J., in arriving at his conclusion in Branca's case that the agreement was binding, was influenced by the fact that it provided that an instalment was to be paid in cash before the formal agreement was drawn and that the deposit was subject to forfeiture on the failure to pay that instalment. In the instant case neither document makes provision for the payment of an instalment of purchase price before the execution of the formal contract of sale and purchase.

33. I respectfully agree that the existence of a term providing for the payment of an instalment before execution favours the conclusion that the document embodies a binding agreement as distinct from a mere tentative arrangement. However, I do not think it follows that the opposite conclusion must be drawn simply because there is no such specific provision in the document.

34. In this connexion the deletion of clause 5 is of some significance, because the purchaser, by virtue of the deletion, is relieved of the obligation of complying with terms and conditions not specified in each order but which might have been contained in the document of agreement for Sale and Purchase referred to in clause 5. This gives rise to the inference that the parties intended the formalised agreements to be restricted to the terms stipulated in the orders.

(6) that, bearing in mind the purchase price of the two floors of Nathan Centre forming the subject of the subject of the agreements, the deposits paid were merely nominal. Mr. Tang submitted that this indicates that the two documents represent nothing more than preliminary agreements to contract.

35. In support of this contention he referred to paragraph 322 of the 4th edition of Halsbury's Laws of England which in referring to the procedure on the sale of land reads:

"The purchaser frequently enters into a preliminary agreement by which he agrees to buy land from the vendor at a price stated in the agreement. The preliminary agreement is usually expressed to be subject to contract and in that case either party, until formal contracts are exchanged, may retire from the bargain, even without giving a reason for so doing. Sometimes the contract is subject to survey and the purchaser is then able similarly to withdraw. Such a preliminary contract is often accompanied by the payment of a nominal deposit, the balance of the full deposit being paid when the formal contract is signed."

36. The situation in the instant case however was not one where there was payment of nominal deposits coupled with an arrangement that the balance of each full deposit was to be paid on the signing of the formal contracts. An examination of the handwritten terms inserted by the parties adjacent to the words "Purchase Price and Terms of Payment" in each document reveals that only one deposit was to be paid in each case and that thereafter a number of instalments of the purchase price were to be made over a number of months and culminating in a payment which was to be made within seven days of the issuance of the occupation permit. It is of significance that the payment to follow the deposit is called "the first instalment" (my underlying). Clearly the latter is the first of a number of payments all of which are different in character to the deposit paid on the signing of each provisional order.

37. Mr. Fung advanced the following major arguments on behalf of the defendant.

(1) The authorities cited are merely illustrative and do no more than show that the interpretation of particular words used in a document depends on an examination of the document as a whole and the relationship of those words with other words therein. Certain words that might be interpreted one way in one document might well be given an entirely different interpretation in another document due to the different context in which they are placed.

(2) In interpreting the two documents greater emphasis should be placed on the handwritten inserted portions than on the pro forma parts. In support of this contention Mr. Fung cited paragraph 716 of the 24th edition of Chitty on Contracts:

"Where the contract is contained in a printed form with writing superadded, the written words, if there should be any reasonable doubt about the sense and meaning of the whole, are to have greater effect attributed to them than the printed words, inasmuch as the written words are the immediate language and terms selected by the parties themselves for the expression of their meaning, and the printed words are a general formula adapted equally to their case and that of all other contracting parties upon similar occasions and subjects."

38. In Mr. Fung's submission the real intention of the parties is embodied in the extensive paragraph inserted in Chinese characters. There they expressed their intentions in clear and particularised terms. Simply because they agreed to sign a formal agreement at a solicitors office within one week meant no more than that they wished to express their agreement into formalised terms.

39. As Lord Blockburn said in Rossiter v. Miller⁽³⁾:

"........ the mere fact that the parties have expressly stipulated that there shall be a formal agreement prepared ..... does not, by itself, show that they continue merely in negotiation."

40. Mr. Fung would undoubtedly argue that the principle that in cases of ambiguity the written words have greater effect than the printed words overrides the rule of contra proferentum since it is clear from paragraph 642 of the volume 11 of Halsbury's Laws of England 3rd edition and paragraph 726 of Chitty on Contracts 24th edition that the latter rule applies only when all other rules of construction fail.

(3) The meaning of the word "provisional" does not mean "tentative" or "conditional" but "operative until something else happens" and that is not only borne out by the Oxford English Dictionary but also by what Lord Greene said at page 857 of the report in Branca's case:

"Denning J. decided this case according to the construction which he gave to the word "provisional". He said that, in his opinion, it meant "tentative". With the greatest deference, "tentative" is not, I should have thought, the meaning in ordinary English of the word "provisional". It certainly is not the meaning that is to be found in the Oxford Dictionary and I should have thought that in this context to change the word "provisional" and substitute the word "tentative" would be introducing something which is really not contained in the word "provisional". The idea expressed by the word "tentative" is something quite different to that expressed by the word "provisional". The ordinary meaning of the word "provisional" I should have thought was something which is going to operate until something else happens. If it was intended to show that the parties regarded themselves as entering into an agreement which was to last only until something else took its place or superseded it, the word "provisional" would be the proper and apt word to describe that intention. An agreement which is only to last until it is replaced by a formal document containing the same terms and drawn up by a solicitor could, I should have thought, be described by no more apt word than the word "provisional"."

41. Although it is true that, unlike the agreement in Branca's case, the documents in the instant case do not specifically provide that a formal agreement shall be drawn "embodying all the conditions herewith stated", I cannot think that those on similar words are critical and that without them the original agreement must be construed as conditional in nature. Such words simply add more weight to the conclusion that the parties intended the original agreement to be binding.

(4) Clause 3 of each document contains a paragraph embodying an express provision relating to forfeiture of the deposit. This is couched in unmistakable language which no other clause of the agreement contradicts either expressly or by implication. To ignore or exclude this provision would be arbitrary and would do violence to the basic canons of construction.

(5) The fact that the parties went into such detail in the handwritten clause in each document shows that they intended it to be a binding contract not an agreement to contract or a mere negotiation in contemplation of a contract coming into existence at some future date.

42. Both counsel made other submissions that I do not intend to refer to. I trust that I am not thereby doing them a disservice. It appears to me, however, that I have covered their major arguments and that all other arguments are either merely ancillary to those major arguments or are alternative ways of expressing them.

43. There is no doubt in my mind that it would be wrong to attempt to interpret the meaning of words, phrases, sentences or even clauses in either of these documents without a consideration of the wording of each document as a whole, and, in view of the fact that each is a pro forma document, without particular examination of those portions inserted by the parties in writing.

44. The English.version of paragraph 4 of each document is:

"In the event that the Company cannot (for whatever reasons) enter into a formal Agreement for Sale and Purchase with the Purchaser the Company shall refund all deposits and/or payments to the Purchaser but without interest and this order shall become null and void."

45. The certified translation of the Chinese version of that clause is couched in almost identical terms. Such differences as exist between the two versions are so slight as to be of no importance.

46. It is of some significance that this clause provides that in the circumstances stated therein the agreement will become null and void. To my mind this gives rise to a clear implication that the agreement has binding effect unless those circumstances arise. Moreover, the let out provisions of the clause do not extend to the purchaser. By necessary implication he is bound by the agreement notwithstanding that for one reason or another he may not be able to enter into a subsequent formal agreement. This clause reinforces the clear wording of the second paragraph of clause 3 of each agreement.

47. A pro forma document is designed as a general formula to meet the requirements of the average situation or a number of basic situations that the draftsman anticipates will arise. It is not uncommon for a pro forma document to contain clauses that are not expected to apply to every occasion. There may even be clauses that to a greater or lesser degree contradict each other. There is often provision made for the written insertion of entire clauses to give expression to the intention of parties wishing to supplement or materially vary any existing pro forma clause or clauses.

48. Pro forma documents, therefore, whilst drafted with a view to covering a basic situation, are, by their nature, designed for adaptation to the circumstances of individual cases. Where the parties do not intend certain clauses to apply such clauses may be struck out or, where they contain spaces for insertions, be left uncompleted. Clauses may be added.

49. Clause 5 in both documents in the instant case has been struck out by the parties both in the English and the Chinese versions. The first paragraph of clause 3, which, as I have already observed, is independent of the second paragraph of that clause, has been left uncompleted. Moreover, an entire clause setting forth detailed arrangements has been inserted by the parties in writing. Not only did the parties leave the first paragraph of the pro forma clause 3 uncompleted but they inserted in their written clause provisions corresponding in content to those contained in the first paragraph of the pro forma clause. Furthermore, by specifying a period of one week in their inserted written clause the parties overrode the period of three days and the provision for its extension referred to in the pro forma clause 3. Thus, not only did the parties ignore the first paragraph of clause 3 by leaving it uncompleted, and therefore ineffective, but they altered its pro forma terms by a specific insertion elsewhere in the agreement.

50. In my view, the second paragraph of the pro forma clause 3 being complete, in the sense that it contains no gaps for insertions, and having an existence and significance independent of the first paragraph of the clause, remains operative. Indeed, its terms are so clear that I find it difficult to see how the first paragraph of that clause could override the second paragraph. In my view the wording of the second paragraph is so positive and unambiguous that even if the first paragraph had been made operative by the parties, its meaning would have to be construed in the light of the second paragraph. If the construction of the first paragraph contended for by the plaintiff is correct then the second paragraph would be completely meaningless. On the other hand, to construe the first paragraph in the light of the second leaves the former perfectly intelligible and with the meaning for which the defendant contends.

51. Moreover, the fact that the second paragraph provides that any non-compliance by the purchaser with the order shall render any deposits or payments made by him liable to forfeiture, clearly indicates that the order is of a binding nature and that it, not a contract of sale and purchase that might come into being as a consequence of some subsequent agreement, governs the forfeiture of any deposit or payment. That this is so, is further supported by the fact that the detailed payments of the balance of purchase price specified in the written clause, are stated, in every instance but one, to be payable on dates subsequent to the signing of the formal agreement. The one exception is the first instalment which is stated to be payable on the signing of the formal agreement. If it had been intended that forfeiture of these payments was to be governed by a contract of purchase and sale that might come into existence if agreement thereto was reached, rather than by a formalised version of each order, it is difficult to understand why the second paragraph of clause 3 stipulates that non-compliance by the purchaser with the order confers on the vendor the right of forfeiture.

52. Although I have explored and, I think, effectively disposed of certain arguments that might be raised on behalf of the plaintiff and which are based on the assumption that the parties intended the first paragraph of clause 3 to form part of their agreement, I am satisfied, for the reasons that I have already given, that the parties excluded the first paragraph and that the two documents must be interpreted on that basis.

53. I give judgment for the defendant. The plaintiffs claim is dismissed and the defendant succeeds on its counterclaim. Accordingly I make declarations that the agreements in respect of the two floors are determined and that the two deposits are forfeited to the defendant.

Representation:

Mr. Robert Tang (Shum & Yeung) for plaintiff.

Mr. Daniel Fung (Chu & Lau) for defendant.

(1) [1924] 1 Ch. 97 at 110

(2) [1947] 1 KB 854

(3) [1978] App.Cas. 1124, 1151