Ho Sun Lee Mahjong School v. Shum Wai Kwan

HCMP000359/1981

Interpretation of "gold-value" clause in a lease - no statute or other authority prohibits the parties from making such provision -clause held void for uncertainty since it embodied a fundamental uncertainty of concept impossible to resolve.

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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BETWEEN

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Coram: Fuad, J.

Date: 21 January 1982

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JUDGMENT

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1. This originating summons concerns the construction of three separate tenancy agreements entered into between a private individual and a mahjong school in respect of certain premises in Kowloon. In each case the agreement gave the mahjong school an option to renew the lease at the expiry of its original term for further periods of three and then two years, at increased rents.

2. Under the first agreement, dated the 5th January 1981, the mahjong school lease of the ground floor of Nos. 119 and 121 Woosung Street, and the mezzanine floor of No. 121, for three years from the 1st February 1978 at a monthly rental of $13,100. The rent for the first and second renewal periods was to be $22,750 and $27,300 respectively, per month.

3. The second agreement, dated the 16th January 1978 gave the mahjong school a lease of the mezzanine floor of No. 119 Woosung Street for three years from the 1st February 1978 at $1,950 per month. If the option for renewal was to be exercised, the rent for the first three years would be $3,250, and for the next two years, $3,900.

4. By virtue of the third agreement, dated the 12th July 1978, the mahjong school took a lease of the first floor of No. 119 Woosung Street for 31 months from the 1st July 1978, rent at $1,850 being reserved. On renewal, rent at $3,250 per month was to be payable for the first three years, increasing to $3,900 per month for the final two years of the extended lease.

5. There is clear provision for all this in the three agreements and a printed form which has presumably stood the test of time was employed, The controversy which has brought the parties before me is over the true interpretation of a clause which was added in handwriting to each lease; a clause which the lessees say is meaningless and the lessor says is perfectly clear. Clause 27 in each agreement is in the following terms (as translated from the Chinese) -

6. I have to say at once that something of the true sense of the original Chinese words might have been lost in translation, but the version I have just read is the best an official interpreter could do and neither Mr. Warren Chan nor Mr. Edward Chan suggested it could be improved upon.

7. I can do no better, I think, than to a consideration of Brown v. Gould [1972] 1 Ch. 53, a first instance decision of Megarry J. (as he then was ) for, as counsel agree, it sets out the proper approach of a court where a clause in an agreement is assailed on the ground that it is meaningless and therefore void for uncertainty. In that case, there was a provision in a lease granting an option renewal in these terms:

"........... such new lease to be for a further term of 21 years rent to be fixed having regard to the market value of the premises at the time of exercising this option taking into account to the advantage of the tenant any increased value of such premises attributable to structural improvements made by the tenant ........"

The annual rent had been £500 and the tenant had virtually rebuilt the premises at an expenditure of nearly £30,000. Although a statute in force gave him the right to have a new tenancy, the tenant wanted to exercise his option to renew under the lease because that would be to his advantage. After reviewing the principles to be applied, Megarry J, held that this was a type of option that was expressed to be exercisable at a price to be determined according to a stated formula and since no effective machinery had been provided in terms for the working out of that formula, and since the parties had disagreed as to the rent payable under it, the court had jurisdiction to determine it. He went on to hold that the option was valid and enforceable because the formula did not embody such uncertainty of concept as to make it void.

8. In Brown v. Gould Megarry J. reviewed a number of authorities and since I respectfully intend to follow the approach he employed in determining the matter before me, I will read what he had to say at p.56 G to p.58A -

"In an unreported case, In re Lloyd's Trust Instruments, June 24, 1970, to which I referred counsel, I endeavoured to state the basic principles applicable in cases of uncertainty. What I said there was:

'I think the starting point on any question of uncertainty must be that of the court's reluctance to hold an instrument void for uncertainty. Lord Hardwicke L.C. once said 'A court never construes a devise void, unless it is so absolutely dark, that they cannot find out the testator's meaning': Minshull v. Minshull (1737) 1 Atk. 411, 421. Lord Brougham said: 'The difficulty must be so great that it amounts to an impossibility, the doubt so grave that there is not even an inclination of the scales one way': Doe d. Winter v. Perratt (1843) 9 Cl. & F. 606, 689. In a well-known statement, Sir George Jessel M.R. said that the court would not hold a will void for uncertainty 'unless it it utterly impossible to put a meaning upon it. The duty of the court is to put a fair meaning on the terms used, and not, as was said in one case, to repose on the easy pillow of saying that the whole is void for uncertainty': In re Roberts (1881) 19 Ch. D. 520, 529. That this is not a doctrine confined to wills but is one which applies to other instruments, such as planning permissions, is shown by cases such as Fawcett Properties Ltd. v. Buckingham County Council [1961] A.C. 636, where, by a majority, the delphic language of a condition in a planning permission escaped from being held void for uncertainty largely because of its resemblance to a section to be found in a modern Act of Parliament. The second question is that of the types of uncertainty. The basic type (and on one view the only true type) is uncertainty of concept, as contrasted with mere difficulty of application: see, for example In re Gape [1952] Ch. 418, affirmed at p.743, where the question was one of a condition subsequent, in which special considerations apply. In Fawcett's case [1961] A.C 636, 670, Lord Keith of Avonholm said: 'The point is one of uncertainty of concept. If it is impossible, on construction of the condition, to reach a conclusion as to what was in the draftsman's mind, the condition is meaningless and must be read as pro non scripto.' Putting it another way, the question is one of linguistic or semantic uncertainty, and not of difficulty of ascertainment: see In re Baden's Deed Trust [1971] A.C. 424, 457, pet Lord Wilberforce. If there is a trust for 'my old friends,' all concerned are faced with uncertainty as to the concept or idea enshrined in these words. It may not be difficult to resolve that 'old' means not 'aged' but 'of long standing'; but then there is the question how long is 'long'. Friendship, too, is a concept with almost infinite shades of meaning. Where the concept is uncertain, the gift is void. Where the concept is uncertain, then mere difficulty in tracing and discovering those who are entitled normally does not invalidate the gift. '

To the authorities mentioned in that passage must now be added Greater London Council v. Connolly [1970] 2 Q.B. 100, a landlord and tenant case concerning a condition on the rent card of a council tenant. This condition provided that the rent and other sums shown on the rent card "are liable to be increased or decreased on notice being given"; and the Court of Appeal unanimously held that the condition was not void for uncertainty.

Lord Denning M.R. said, at p. 108:

'The courts are always loath to hold a condition bad for uncertainty. They will give it a reasonable interpretation whenever possible. It is possible here.'

Lord Pearson said, at p.110:

'As my Lord has said, the courts are always loath to hold a clause invalid for uncertainty if a reasonable meaning can be given to it, and it seems to me easy to give a reasonable meaning to this condition.'

Sir Gordon Willmer agreed. No doubt there may be cases in which the draftsman's ineptitude will succeed in defeating the court's efforts to find a meaning for the provision in question: but only if the court is driven to will it be held that a provision is void for uncertainty."

9. In the lessor's favour I have, of course, to assume that the parties meant something by the words they used in clause 27. I think it is reasonably clear, however inperfectly drafted, that the clause was intended to safeguard the landlord against the ravages of inflation and the risk of a considerable depreciation of the dollar. Plainly enough, it seems to me, the draftsman was attempting to make provision for what has come to be known as a "gold value clause." In the absence of legislation, or authority based on principles of public policy, there is nothing to prevent the parties from agreeing to such a clause.

10. As I have indicated earlier, it is contended on behalf of the lessor that the meaning of the clause is perfectly clear: the parties intended that the rent due on exercising the option for renewal was to be converted into the value of a quantity of gold at the rate of $946 per tael. Although the amount of gold was not expressly stated, the argument goes, the number of taels of gold could be ascertained by simple arithmetic. The rent reserved on the renewal of the first lease, as an example, was stated to be $22,750; if one divided that figure by $946 one arrived at a quantity of 24.04 taels of gold. Since on the date of renewal the price of gold had risen to $3,160 per tael (which was more than a 10% rise) instead of $22,750, the rent payable, if the lessor opted for it, was $75,966 per month. Put another way, the lessor says clause 27 means that if between the date of the execution of the lease and the date of renewal, the price of gold went up more than 10%, the new rent reserved would likewise be increased by the same percentage, according to the following formula -

11. As exemplified by Brown v. Gould (I have in mind particularly the passage of Megarry J's judgment at p.61 B-D) the point, of course, is not whether the words of clause 27 might have been more precise, but whether it is void for uncertainty. The formula must be approached with "reasonable goodwill" and in Megarry J's words "The question is not ...... whether the clause is proof against wilful misinterpretation." Anyone reading the clause in the context of the whole lease would confidently conclude that it intended to provide for the enhancement of the rent reserved on renewal (for which the lessor could opt) if the price of gold of a specified fineness in a named market rose 10% above a stated amount. In these circumstances, it would indeed be a counsel of despair if I were to hold that the clause is void for uncertainty. However it is a truism that it is for the lessor to satisfy me that the interpretation for which he contends is not what the parties may have intended to effect but that it is the fair meaning of the words actually employed, the court's approach being governed by the principles I have reviewed earlier in my judgment.

12. Even if I were able to accept the line of argument put forward on behalf of the landlord, and attempt to resolve the controversy by a simple arithmetical calculation, it seems to me that it cannot be said with any degree of certainty that the percentage rise in the price of gold which would "trigger" the option to insist upon a higher rent, should be applied to the rent reserved at renewal ($22,750) rather than to the rent for the original term of the lease ($13,100). If any meaning can be given to the clause, it could surely legitimately be argued that the lessor could elect to be paid $22,750 rent per month or at the rate of $13,100 increased by the percentage increase in the value of a tael of gold, i.e. $43,759 instead of $75,994. It may be that if it could be said that the language employed in the clause was not so obscure as to render it meaningless the court could apply a construction that would favour the obligee, but with considerable reluctance I hold that no effect can be given to the clause because I can extract no sense from the words used. I am forced to this conclusion because I find a fundamental uncertainty of concept which is impossible to resolve. A very clear provision was made for the rent reserved upon renewal and in my judgment that provision cannot be replaced by one that would have to be very substantially re-written to give it any meaning. Apart from the difficulty of understanding precisely what is meant by the first sentence of the clause (which may partly be due to problems of interpretation) when the second sentence of the clause says ".......... Party A it is entitled to choose the price of 99% gold for rent payment" an essential step in the formula is omitted: how much gold is to govern the ascertainment of the rent payable?

13. For the reasons I have attempted to give, I find in favour of the lessee. Clause 27 is void for uncertainty and can therefore be ignored. The rent reserved for the two extended periods of each of the three leases is that for which provision is made in clause 28 of each instrument.

Representation:

Warren Chan instructed by P.L. Chung & Co. for plaintiff.

Edward Chan instructed by J.S.M. for defendant.