Kou Lau Ru Ling v. Tse Sui Luen

HCA004669/1999

HCA 4676/99

HEADNOTES

On 2nd March 19998, the Defendant entered into five Deeds of Put Option with the Plaintiffs ("the Deeds") separately whereby the Defendant granted to the Plaintiffs the option to require by written notice the Defendant to purchase their shares in a listed company on the fourteenth (14th) day after the day on which the grantor is deemed to have received the option notice. The option notice should be substantially in the form set out in Schedule 1 to the Deeds which do not require the completion date to be specified. On 6th March 1999, all the Plaintiffs simultaneously served notices by hand requiring the Defendant to purchase their shares in the Company. The Defendant admits receiving the notices on 6th March 1999. The date mentioned in the notices for completion, viz. 19th March 1999, is inconsistent with that determined in accordance with the Deeds. The correct date should be 20th March 1999. The Defendant challenged the validity of the notices.

The defence contended that there are authorities on "if" contracts which require strict compliance with all the "if" conditions. The notices stated the completion date as 19th March 1999 which is 13 days after the date of service whereas the Defendant is entitled to 14 days' notice, hence there was non-compliance with an essential condition for the exercise of the Option.

Held: - (1) Even accepting for argument's sake that there is a distinction between synallagmatic contracts and unilateral "if" contracts for present purposes, on the true construction of the Deeds, it was not necessary for the notices to state the date for completion. There cannot be breach of a non-existent condition. The effective date for completion was already fixed by the Deeds as the 14th day after the date of service of the notices. The Plaintiffs have complied with all the necessary conditions.

(2) The modern approach to construction of contracts and contractual notices expounded by the House of Lords in Mannai Investment Co. Ltd. v. Eagle Star Life Assurance Co. Ltd. should be followed without distinction as to type of contracts.

(3) The notices stated "19th March 1999, i.e. the 14th day after the date hereof." The calendar date given is an obvious clerical error. The Plaintiffs clearly meant to adhere to the Deeds. Applying Mannai, the notices are valid.

HCA 4669/99

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 4669 OF 1999

____________

HCA 4671/99

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 4671 OF 1999

____________

HCA 4672/99

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 4672 OF 1999

____________

HCA 4674/99

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 4674 OF 1999

____________

HCA 4676/99

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 4676 OF 1999

____________

____________

Coram: Deputy Judge Li in Chambers

Date of Hearing: 26 August 1999

Date of Handing Down Judgment: 8 September 1999

_____________________

J U D G M E N T

_____________________

Before me are five Order 86 applications in 5 corresponding actions involving different Plaintiffs but the same Defendant. The material facts and documents for the purposes of all these five applications are for all practical purposes identical.

2.On 2nd March 1998, the Defendant entered into five Deeds of Put Option with the Plaintiffs ("the Deeds") separately whereby the Defendant granted to the Plaintiffs the option to require the Defendant to purchase their shares in Tse Sui Luen Jewellery (International) Ltd. ("the Company"). The relevant clauses in the Deeds are: -

"1.1	"Closing Date"	15:00 hours (Hong Kong time) on the fourteenth (14th) day after the day on which the Grantor is deemed to have received the Option Notice (and if that day does not fall on a Business Day, the immediately following Business Day) or such other time or date as the Grantor and the Grantee shall agree on which completion of the sale and purchase of the Option Shares shall take place pursuant to Clause 5 and Schedule 2;
	"Option"	the right granted under Clause 3.1 by the Grantor to the Grantee;
	"Option Notice"	the written notice exercising the Option substantially in the form set out in Schedule 1;
	"Option Period"	fourteen (14) days commencing from the expiry of the first (1st) anniversary of the date of completion of the Sale and Purchase Agreement;

3.1	... the Grantor [i.e. the Defendant] hereby grants to the Grantee [i.e. the Plaintiffs] the right to require, at any time during the Option Period, the Grantor to purchase all or part of the Option Shares at the Option Price subject to the terms and conditions herein contained. ......

4. EXERCISE OF OPTION

4.1	The Option may be exercised in respect of any or all the Option Shares but can only be exercised once by the Grantee giving to the Grantor the Option Notice during the Option Period specifying the number of Option Shares in respect of which the Grantee exercises the Option.
4.2	An Option Notice, once given, may not be withdrawn except with the written consent of the Grantor.

5. COMPLETION

5.1	The Grantee will take all steps required to deposit the Specified Shares into CCASS prior to 10:00 hours (Hong Kong time) on the Closing Date so that they are available to effect Completion through CCASS. ......

7. REMEDIES OF GRANTEE

If the Grantor shall fail to purchase or procure the purchase of the Specified Shares on the Closing Date in accordance with the terms herein, the Grantee shall be entitled to demand specific performance of the obligations of the Grantor herein and (without prejudice to any other remedies available to the Grantee under this Deed) to claim against the Grantor for all losses and damages (on a full indemnity basis) suffered by the Grantee as a result of the default of the Grantor.

......

10. MISCELLANEOUS

10.1

Each notice, demand or other communication given or made under this Deed shall be in writing and delivered or sent to the relevant party at the address or facsimile number set out below (or such other address or facsimile number as the addressee has by five (5) days' prior written notice specified to the other party):

SCHEDULE 1

Option Notice

[GRANTOR]

[Address]

Dear Sir,

Re: Deed of Put Option dated 2nd March, 1998 entered into between Mr. [GRANTOR] and Ms. [GRANTEE] (the "Deed")

I refer to the Deed. Capitalised terms used in the Deed shall have the same meanings herein.

Pursuant to Clause 4 of the Deed, I hereby give you notice of my intention to exercise the Option to the extent of /all of the Option Shares [Note].

I hereby warrant to you that the above stated Option Shares comprise

/all of the Sale Shares and a proportionate part/all of the Additional Securities. In the event that the aforesaid warranty shall be untrue, inaccurate or misleading in any respect, I shall indemnify you accordingly.

Yours faithfully,

[GRANTEE]

Note: Please complete and delete as appropriate.

3.On 6th March 1999, all the Plaintiffs simultaneously served notices ("the Served Notices") by hand requiring the Defendant to purchase their shares in the Company. The Defendant admits receiving the Served Notices on 6th March 1999. The Served Notices are all like this: -

Option Notice

6th March, 1999

[GRANTOR]

[Address]

Dear Sir,

Re: Deed of put option dated 2nd March, 1998 entered into between [GRANTOR] and [GRANTEE] (the "Deed")

I refer to the Deed. Capitalised terms used in the Deed shall have the same meanings herein.

Pursuant to Clause 4 of the Deed, I hereby give you notice of my intention to exercise the Option to the extent of all of the Option Shares (that is, 550,000 Ordinary Shares). The Closing Date for Completion will be 3:00 p.m., (Hong Kong time) on 19th March, 1999, that is, the 14th day after date hereof. My bank account details for payment of the aggregate Option Price (less all Hong Kong seller's ad vaiorem stamp duty, fixed duty on the instruments of transfer and half share of the CCASS fees as may be payable in respect of the sale of the Option Shares) for all of the Option Shares in the amount of HK$1,153,556 are as follows: -

[Particulars given]

I hereby warrant to you that the above stated Option Shares comprise all of the Sale Share and all of the Additional Securities. In the event that the aforesaid warrant shall be untrue, inaccurate or misleading in any respect, I shall indemnify you accordingly.

Yours faithfully,

[Signed]

[GRANTEE]

4.It is common ground that the date mentioned in the Served Notices for completion, viz. 19th March 1999, is inconsistent with that determined in accordance with the Deeds. The correct date should be 20th March 1999. Whether the Defendant realized the inconsistency between the calendar date stated in the Served Notices with the contractual date or not, he did nothing in response and presently he challenges the validity of the Served Notices. The validity of the Served Notices is the only issue I have to decide. It is not suggested that, if the Served Notices are valid Option Notices, an order for specific performance is not the appropriate relief.

5.Mr. Ronny Tong, S.C. for the Plaintiffs contended that, on the true construction of Clause 4.1 of the Deeds, it is not necessary for the Plaintiffs to state in the Served Notices the calendar date for completion. When that date is stated, it is irrelevant. Moreover, it is plain on the face of the Served Notices that "19th March 1999" is a clerical error. There are clear authorities to the effect that in these circumstances the court should ignore the mistake or read "19th March 1999" as "20th March 1999".

6.The principal authority relied upon by Mr. Ronny Tong, S.C. is Mannai Investment Co. Ltd. v. Eagle Star Life Assurance Co. Ltd. [1997] A.C. 749. In that case the relevant anniversary date on which notice to terminate two leases should expire was indisputably 13th January. The tenant however served notices to terminate the leases on 12th January. A bare majority of three in the House of Lords held that the notices were nonetheless valid. I was referred to the following parts of the majority speeches: -

"On reflection I have come to the conclusion that the question of the construction of the notices should be answered by holding that the notices were effective to determine the leases. I will first summarise my analysis of the problem before I explain why I feel unable to accept the attractively presented arguments of counsel for the landlord.

The reasons for my conclusion can be stated in the form of numbered propositions.

(1) This is not a case of a contractual right to determine which prescribes as an indispensable condition for its effective exercise that the notice must contain specific information. After providing for the form of the notice ("in writing"), its duration ("not less than six months") and service ("on the landlord or its solicitors"), the only words in clause 7(13) relevant to the content of the notice are the words "notice to expire on the third anniversary of the term commencement date determine this lease." Those words do not have any customary meaning in a technical sense. No terms of art are involved. And neither side has suggested that anything should be implied into the language. That is not surprising since the tests governing the implication of terms could not conceivably be satisfied. The language of clause 7(13) must be given its ordinary meaning. A notice simply expressed to determine the lease on the third anniversary of the commencement date would therefore have been effective. The principle is that that is certain which the context renders certain: Sunrose Ltd. v. Gould [1962] 1 W.L.R. 20.

(2) The question is not how the landlord understood the notices. The construction of the notices must be approached objectively. The issue is how a reasonable recipient would have understood the notices. And in considering this question the notices must be construed taking into account the relevant objective contextual scene. The approach in Reardon Smith Line Ltd. v. Yngvar Hansen-Tangen (trading as H. E. Hansen-Tangen) [1976] 1 W.L.R. 989, which deals with the construction of commercial contracts, is by analogy of assistance in respect of unilateral notices such as those under consideration in the present case. Relying on the reasoning in Lord Wilberforce's speech in the Reardon Smith case, at pp. 996D-997D, three propositions can be formulated. First, in respect of contracts and contractual notices the contextual scene is always relevant. Secondly, what is admissible as a matter of the rules of evidence under this heading is what is arguably relevant. But admissibility is not the decisive matter. The real question is what evidence of surrounding circumstances may ultimately be allowed to influence the question of interpretation. That depends on what meanings the language read against the objective contextual scene will let in. Thirdly, the inquiry is objective: the question is what reasonable persons, circumstanced as the actual parties were, would have had in mind. It follows that one cannot ignore that a reasonable recipient of the notices would have had in the forefront of his mind the terms of the leases. Given that the reasonable recipient must be credited with knowledge of the critical date and the terms of clause 7(13) the question is simply how the reasonable recipient would have understood such a notice. This proposition may in other cases require qualification. Depending on the circumstances a party may be precluded by an estoppel by convention from raising a contention contrary to a common assumption of fact or law (which could include the validity of a notice) upon which they have acted: Norwegian American Cruises A/S (formerly Norwegian American Lines A/S) v. Paul Mundy Ltd. [1988] 2 Lloyd's Rep. 343. Such an issue may involve subjective questions. That is, however, a different issue and not one relevant to this appeal. I proceed therefore to examine the matter objectively.

(3) It is important not to lose sight of the purpose of a notice under the break clause. It serves one purpose only: to inform the landlord that the tenant has decided to determine the lease in accordance with the right reserved. That purpose must be relevant to the construction and validity of the notice. Prima facie one would expect that if a notice unambiguously conveys a decision to determine a court may nowadays ignore immaterial errors which would not have misled a reasonable recipient.

(4) There is no justification for placing notices under a break clause in leases in a unique category. Making due allowance for contextual differences, such notices belong to the general class of unilateral notices served under contractual rights reserved, e.g. notices to quit, notices to determine licences and notices to complete: Delta Vale Properties Ltd. v. Mills [1990] a W.L.R. 445, 454E-G. To those examples may be added notices under charter parties, contracts of affreightment, and so forth. Even if such notices under contractual rights reserved contain errors they may be valid if they are "sufficiently clear and unambiguous to leave a reasonable recipient in no reasonable doubt as to how and when they are intended to operate:" the Delta case, at p. 454E-G, per Slade L.J. and adopted by Stocker and Bingham L.JJ.; see also Carradine Properties Ltd. v. Aslam [1976] 1 W.L.R. 442, 444. That test postulates that the reasonable recipient is left in no doubt that the right reserved is being exercised. It acknowledges the importance of such notices. The application of that test is principled and cannot cause any injustice to a recipient of the notice. I would gratefully adopt it.

(5) That brings me to the application of this test. The facts are simple. Crediting a reasonable recipient with knowledge of the terms of the lease and third anniversary date (13th January), I venture to suggest that it is obvious that a reasonable recipient would have appreciated that the tenant wished to determine the leases on the third anniversary date of the leases but wrongly described it as the 12th instead of the 13th. The reasonable recipient would not have been perplexed in any way by the minor error in the notices. The notices would have achieved their intended purpose."

......

"In determining the meaning of the language of a commercial contract, and unilateral contractual notices, the law therefore generally favours a commercially sensible construction. The reason for this approach is that a commercial construction is more likely to give effect to the intention of the parties. Words are therefore interpreted in the way in which a reasonable commercial person would construe them. And the standard of the reasonable commercial person is hostile to technical interpretations and undue emphasis on niceties of language. In contradistinction to this modern approach Lord Greene M.R.'s judgment in Hankey v. Clavering [1942] 2 K.B. 326 is rigid and formalistic. Nowadays one expects a notice to determine under a commercial lease to be interpreted not as a "technical document" but in accordance with business common sense" see Micrografix v. Woking 8 Ltd. [1995] 2 E.G.L.R. 32. After all, there is no reason whatever why such a document must be drafted by a lawyer. Qualitatively, the notices are of the same type as notices under charter parties and contracts of affreightment. Such notices, even if they entail the exercise of important options, are habitually drafted by commercial men rather than lawyers. It would be disservice to commercial practice to classify such notices as technical documents and to require them to be interpreted as such. Nowadays one must substitute for the rigid rule in Hankey v. Clavering the standard of a commercial construction." (Per Lord Steyn at PP 767-769 and 771)

"I propose to begin by examining the way we interpret utterances in everyday life. It is a matter of constant experience that people can convey their meaning unambiguously although they have used the wrong words. We start with an assumption that people will use words and grammar in a conventional way but quite often it becomes obvious that, for one reason or another, they are not doing so and we adjust our interpretation of what they are saying accordingly. We do so in order to make sense of their utterance: so that the different parts of the sentence fit together in a coherent way and also to enable the sentence to fit the background of facts which plays an indispensable part in the way we interpret what anyone is saying. No one, for example, has any difficulty in understanding Mrs. Malaprop. When she says "She is as obstinate as an allegory on the banks of the Nile," we reject the conventional or literal meaning of allegory as making nonsense of the sentence and substitute "alligator" by using our background knowledge of the things likely to be found on the banks of the Nile and choosing one which sounds rather like "allegory."

Mrs. Malaprop's problem was an imperfect understanding of the conventional meanings of English words. But the reason for the mistake does not really matter. We use the same process of adjustment when people have made mistakes about names or descriptions or days or times because they have forgotten or become mixed up. If one meets an acquaintance and he says "And how is Mary?" it may be obvious that he is referring to one' wife, even if she is in fact called Jane. One may even, to avoid embarrassment, answer "Very well, thank you" without drawing attention to his mistake. The message has been unambiguously received and understood.

If one applies that kind of interpretation to the notice in this case, there will also be no ambiguity. The reasonable recipient will see that in purporting to terminate pursuant to clause 7(13) but naming 12th January 1995 as the day upon which he will do so, the tenant has made a mistake. He will reject as too improbable the possibility that the tenant meant that unless he could terminate on 12th January, he did not want to terminate at all. He will therefore understand the notice to mean that the tenant wants to terminate on the date on which, in accordance with clause 7(13), he may do so, i.e. 13th January.

......

It is of course true that the law is not concerned with the speaker's subjective intentions. But the notion that the law's concern is therefore with the "meaning of his words" conceals an important ambiguity. The ambiguity lies in a failure to distinguish between the meanings of words and the question of what would be understood as the meaning of a person who uses words. The meanings of words, as they would appear in a dictionary, and the effect of their syntactical arrangement, as it would appear in a grammar, is part of the material which we use to understand a speaker's utterance. But it is only a part; another part is our knowledge of the background against which the utterance was made. It is that background which enables us, not only to choose the intended meaning when a word has more than one dictionary meaning but also, in the ways I have explained, to understand a speaker's meaning, often without ambiguity, when he has used the wrong words.

When, therefore, lawyers say that they are concerned, not with subjective meaning but with the meaning of the language which the speaker has used, what they mean is that they are concerned with what he would objectively have been understood to mean. This involves examining not only the words and the grammar but the background as well. So, for example in Doe d. Cox v. Roe, 4 Esp. 185 the landlord of a public house in Limehouse gave notice to quit "the premises which you hold of me ... commonly called ... The Waterman's Arms." The evidence showed that the tenant held no premises called The Waterman's Arms; indeed, there were no such premises in the parish of Limehouse. But the tenant did hold premises of the landlord called The Bricklayer's Arms. By reference to the background, the notice was construed as referring to The Bricklayer's Arms. The meaning was objectively clear to a reasonable recipient, even though the landlord had used the wrong name. We therefore will in due course have to answer the question: if, as long ago as 1803, the background could be used to show that a person who speaks of The Waterman's Arms means The Bricklayer's Arms, why can it not show that a person who speaks of 12th January means 13th January?

The immediate point, however, is that the fact that the law does not have regard to subjective meaning is no explanation of the way Hankey v. Clavering [1942] 2 K.B. 326 was decided. There was no need to resort to subjective meaning: the notice would objectively have been understood to mean that the landlord wanted to terminate the tenancy on the day on which he was entitled to do so." (per Lord Hoffman at PP 774-775)

"In my opinion a like view should be taken in the circumstances of the present case. The notices were expressed to be "pursuant to clause 7(13)." It is plain from that that the tenant intended to invoke that clause. It is also plain that the tenant wished to determine the tenancy and that clause is the only clause under which the tenant could achieve that result. The landlord would be expected to know the terms of the lease and the date on which the lease fell to be determined under that clause. He would also be expected to know that there was no formal requirement for the tenant to specify in the notice the date of termination of the lease. There was no evident reason why the tenant should specify 12th January rather than 13th January. The close proximity of the 13th makes it the more evident that it was erroneous and that the date intended was the date which the parties had agreed for a determination of the tenancy under clause 7(13). While there is a discrepancy evident in the notices between the reference to the clause and the statement of the date it seems to me that the notices were sufficiently clear and unambiguous. No reasonable landlord would in my view by misled by the statement of a date which in the context of a clear intention to invoke clause 7(13) was inaccurate. The landlord would in my view recognise that in each case the reference to 12th January was to be read as a reference to 13th Januarys and I would so construe the notices.

In Hankey v. Clavering [1942] 2 K.B. 326 the court refused to disregard a slip even although the intention of the notice was sufficiently clear from its terms and the recipient could not reasonably misunderstand it. In my view that was too strict and too technical an approach. Counsel for the tenant sought to restrict the decision in the Hankey case to circumstances where the insertion of the date of termination is an essential requirement of a notice. I am, however, not persuaded that the decision in the Hankey case rested on the understanding that the specification of the date was an essential. I note that the corresponding provisions in the Carradine case and in the Miscrografix case were not dissimilar and indeed in the latter case one element in the decision was the consideration that there was no requirement to specify a date. While to a considerable extent the cases in this field may turn upon their own circumstances I do not consider that the decision reached in the Hankey case was sound and in my opinion it should be overruled. In the circumstances of the present case I take the view that the notices were valid and effective. I agree with your Lordships that the argument based on Sidebotham v. Holland [1895] 1 Q.B. 378 is without merit. But for the reasons which I have explained I would allow the appeal." (per Lord Clyde at PP 782-783)

7.I am indebted to counsel for his pointing out that the majority decision in Mannai was followed in two subsequent cases decided by the English Court of Appeal and one further case that went to the House of Lords. See Investors Compensation Scheme Ltd. v. West Bromwich Society [1998] 1 W.L.R. 896, Atari Corporation (U.K.) Ltd. v. Electronics Boutique Stores (U.K.) Ltd. [1998] Q.B. 539 and Gartson v. Scottish Widows' Fund & Life Assurance Society [1998] 1 W.L.R. 1583. In theInvestors Compensation Scheme case, Lord Goff endorsed the majority decision to which he had dissented in Mannai. The majority speeches in Mannai I have quoted at length amply demonstrate the rationale Mr. Tong urges me to adopt. I do not think it is necessary to go into the subsequent supporting authorities.

8.Mr. Winston Poon, S.C. for the Defendant advanced a rather interesting argument. He noted that their Lordships in Mannai were dealing with synallagmatic contracts. There is on the other hand a line of authorities on "if" contracts which require different treatment. Mr. Ronny Tong, S.C. has made my task much simpler by accepting the following propositions framed by his learned friend as good law: -

"(1) (a) "an option is a species of privilege for the benefit of the party on whom it is conferred ..., it is for that party to comply strictly with the conditions stipulated for the exercise of the option" (per William LJ Hare v. Nicoll [1966] 2 QB 130 (C.A.) at 141)

Hare v. Nicoll supra at 141-142

West Country Cleaners (Falmouth) Ltd v. Saly [1966] 1 WLR 1485 (C.A.) at 1489D-1490A

United Dominions Trust (Commercial) Ltd v. Eagle Aircraft Services Ltd. [1968] 1 WLR 74 (C.A.) at 81B-C, 83D-84E & 87D-E

United Scientific v. Burnley Council [1878] AC 944 (H.L.) at 929B-929D;

(b) therefore, until all conditions have been fulfilled, no binding contract and obligation of vendor and purchaser does not arise (of "unilateral" or "if contracts" versus "synallagmatic contracts" as in Mannai Ltd. v. Eagle Assurance Co. Ltd. [1997] AC 749 where notice to quit was served pursuant to existing tenancy contract)

Lord Ranelagh v. Melton (1864) 62 E.R. 627 at 629

Weston v. Collins (1865) 12 L.T. (N.S.) 4 at 5

Hare v. Nicoll supra at 142, 146-147

United Dominions Trust (Commercial) Ltd. v. Eagle Aircraft Services Ltd. supra at 80G-81C, 82F-84E

United Scientific v. Burnley Council supra at 928G-929G;

(c) it is immaterial whether the condition is reasonable or trivial

Weston v. Collins supra at 5

West Country Cleaners (Falmouth) Ltd. v. Saly supra at 81A-B, 87C-D.

(2) Further, if stipulation as to time limit has not been observed, an option lapses because time is essence of the contract when involving sale of "shares of a highly speculative and volatile character"

Hare v. Nicoll supra at 142-143, 146-147

9.I should think the most illustrative exposition of the propositions canvassed by Mr. Winston Poon, S.C. and their application can be found in the speech of Lord Diplock in United Scientific v. Burnley Council at pp 928-929:-

"My Lords, I will not take up time in repeating here what I myself said in the Hongkong Fir case, except to point out that by 1873:

(1) Stipulations as to the time at which a party was to perform a promise on his part were among the contractual stipulations which were not regarded as "conditions precedent" if his failure to perform that promise punctually did not deprive the other party of substantially the whole benefit which it was intended that he should obtain from the contract;

(2) When the delay by one party in performing a particular promise punctually had become so prolonged as to deprive the other party of substantially the whole benefit which it was intended that he should obtain from the contract it did discharge that other party from the obligation to continue to perform any of his own promises which as yet were unperformed;

(3) Similar principles were applicable to determine whether the parties' duties to one another to continue to perform their mutual obligations were discharged by frustration of the adventure that was the object of the contract. A party's ability to perform his promise might depend upon the prior occurrence of an event which neither he nor the other party had promised would occur. The question whether a stipulation as to the time at which the event should occur was of the essence of the contract depended upon whether even a brief postponement of it would deprive one or other of the parties of substantially the whole benefit that it was intended that he should obtain from the contract.

In one respect the Court of Chancery had introduced a refinement in the way it dealt with stipulations as to time in contracts for the sale of land, which had no close counterpart in the rules that had by 1873 been adopted in the courts of common law. Once the time had elapsed that was specified for the performance of an act in a stipulation as to time which was not of the essence of the contract, the party entitled to performance could give to the other party notice calling for performance within a specified period: and provided that the period was considered by the court to be reasonable, the notice had the effect of making it of the essence of the contract that performance should take place within that period. Hence the reference in the statutory provisions that I have cited to time being deemed to "have become" of the essence of the contract.

Both in the Court of Chancery and in the courts of common law the rules that have been developed about particular stipulations not being of the essence of the contract or not being "conditions precedent" applied to synallagmatic contracts only. They did not apply to unilateral or "if contracts," of which the example most germane to the instant appeals is an option. As pointed out by Lord Denning M.R. in United Dominions Trust (Commercial) Ltd. v. Eagle Aircraft Services Ltd. [1968] 1 W.L.R. 74, 81 where speaking of options to purchase real or personal property or to renew a lease, he said:

"In point of legal, analysis, the grant of an option in such cases, is an irrevocable offer (being supported by consideration so that it cannot be revoked). In order to be turned into a binding contract, the offer must be accepted in exact compliance with its terms. The acceptance must correspond with the offer."

Exact compliance with the terms of the offer in an "if contract" had been required in courts of equity as well as in courts of common law: see Weston v. Collins (1865) 12 L.T. 4; Finch v. Underwood (1876) 2 Ch.D. 310. A rationale of the distinction which was drawn between the two kinds of contracts in courts of equity is that equity was concerned with the performance of contracts into which parties had already entered. It did not force any person to enter into a contract with another.

Again I will refrain from repeating the more elaborate juristic analysis of the distinction between the two types of contract that I attempted in the United Dominions Trust case [1968] 1 W.L.R. 74, 83-84. A more practical business explanation why stipulation as to the time by which an option to acquire an interest in property should be exercised by the grantee must be punctually observed, is that the grantor, so long as the option remains open, thereby submits to being disabled from disposing of his proprietary interest to anyone other than the grantee, and this without any guarantee that it will be disposed of to the grantee. In accepting such a fetter upon his powers of disposition of his property, the grantor needs to know with certainty the moment when it has come to an end.

My Lords, although a lease is a synallagmatic contract it may also contain a clause granting to the tenant an option to obtain a renewal of the lease upon the expiration of the term thereby granted. Such a clause provides a classic instance of an option to acquire a leasehold interest in futuro, and it is well established that a stipulation as to the time at which notice to exercise the option must be given is of the essence of the option to renew. Although your Lordships have not been referred to any direct authority upon the converse case of a "break clause" granting to the tenant an option to determine his interest in the property and his contractual relationship with the landlord prematurely at the end of a stated period of the full term of years granted by the lease, there is a practical business reason for treating time as of the essence of such a clause, which is similar to that applicable to an option to acquire property. The exercise of this option by the tenant will have the effect of depriving the landlord of the existing source of income from his property and the evident purpose of the stipulation as to notice is to leave him free thereafter to enter into a contract with a new tenant for a tenancy commencing at the date of surrender provided for in the break clause."

10.Applying the propositions, Mr. Winston Poon, S.C. struck in this manner: the Served Notices stated the completion date as 19th March 1999 which is 13 days after the date of service whereas the Defendant is entitled to 14 days' notice, hence there was non-compliance with an essential condition for the exercise of the Option. Due to such non-compliance, the Defendant was not obliged to complete. Mr. Ronny Tong, S.C. took the view that the defence is wholly without merits. I suppose the Defendant must be fairly desperate.

11.Let it be said at once that even adopting the approach taken by Lord Diplock for "if" contracts, the first and paramount task for the court is to determine what are the conditions to be fulfilled in order to validly exercise the Option. I think Clause 4.1 in the Deeds leaves no doubt that the Served Notices do not have to specify the completion date. One cannot breach a non-existent condition. There is considerable force in the argument that by stating a date that is one day short of the correct completion date, the Plaintiffs may be taken as giving less than the requisite 14 days' notice. But one cannot ignore the further modifier "that is, the 14th day after the date hereof" in the Served Notices. The Plaintiffs, by this modifier, gave 14 days' notice.

12.Mr. Winston Poon, S.C. argued that since the Served Notices are inherently inconsistent, i.e. giving "19th March 1999" and "14th day from the date hereof" as the completion date, there is ambiguity rendering the Served Notices invalid. During the course of the hearing, I put to counsel the hypothetical situation of a notice bearing 6th March 1998 as the date of the notice when it is in fact served on 6th March 1999. Would that kind of error render the notice invalid? Counsel quite properly accepted, with authority in support, that such error can be ignored; however, if the error is one that projects to a future date, counsel said that the court may well take a different view. I think the point is not whether the court may take a different view when the error is different, the point is that the court is entitled to look at the error and consider all factors and circumstances before deciding its effect. In my view, on the plain reading of the Served Notices themselves, without having to resort to extraneous circumstances, it is plain that the Plaintiffs meant to adhere strictly to the Deeds.

13.Mr. Winston Poon S.C. contended that the principles enumerated in Mannai should not be taken to apply to cases involving "if" contracts because that case dealt with a synallagmatic contract. It is indeed true that none of the authorities relied upon by Mr. Winston Poon S.C. was discussed by their Lordships in Mannai. However, this does not necessarily mean that their Lordship's intended to lay down the law for one type of contracts only. One of the reasons I have quoted the speeches at length is to show fully their Lordships' reasoning and the cases considered by them. Quite clearly, their Lordships looked into a variety of cases and no distinction was made between one type from another in reaching the conclusion that became the majority decision. Their Lordships obviously were addressing commercial contracts generally. In the premises, Mannai must apply to the instant one too. Even if that decision was not made with "if" contracts in mind, the reasoning expounded in that case applies with equal force to such contracts. If necessary, I hold that the law laid down in Mannai extends to cases involving other types of commercial contracts including the instant one.

14.Accordingly, there was judgment for the Plaintiffs in all five cases with order for specific performance as prayed. I also made an order nisi that the Defendant do bear the Plaintiffs' costs in all five actions to be taxed if not agreed. The order nisi becomes absolute in each action unless application for variation is made within 14 days from the date of handing down this judgment.

Representation:

Mr. Ronny Tong, S.C. leading Mr. Rimsky Yuen instructed by Messrs. Richards Butler for the Plaintiffs.

Mr. Winston Poon, S.C. leading Ms. Linda Chan instructed by Messrs. Lau, Chan & Ko for the Defendants.