Urban Renewal Authority v. Agrila Ltd and Another

CACV 49/2009

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 49 OF 2009

(ON APPEAL FROM HCA NO. 1582 OF 2002)

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BETWEEN

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Before: Hon Rogers VP and Le Pichon JA in Court

Date of Hearing: 15 December 2009

Date of Judgment: 15 December 2009

Date of Handing Down Reasons for Judgment: 30 December 2009

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REASONS FOR JUDGMENT

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Hon Rogers VP:

1.I agree with the reasons for judgment of Le Pichon JA.

Hon Le Pichon JA:

2.This was an appeal by the defendants from orders dated 19 February 2009 of Deputy High Court Judge Louis Chan whereby the judge allowed appeals from orders of Master J Wong dated 11 June 2004 one of which dismissed the plaintiff’s summons to strike out parts of the witness statement of Abraham Razack and the other allowed the defendants’ summons for discovery. At the conclusion of the hearing, the appeal was dismissed. My reasons appear below.

Background

3.The Urban Renewal Authority, formerly known as the Land Development Corporation (“the plaintiff”) and the first defendant were parties to a joint-venture for the redevelopment of a site in Central. In 1989, they entered into Heads of Agreement (“the 1989 agreement”) which contemplated the sale of units in the development upon its completion and the equal division of profits after a guaranteed payment to the plaintiff and reimbursements to the first defendant. Under the 1989 agreement, the first defendant was responsible for resumption payments.

4.In July 1997, the parties varied the 1989 agreement by entering into a Restructuring Agreement under which the plaintiff was to receive the “Guaranteed Profit” of approximately $1.9 billion subject to adjustment. Part of the Guaranteed Profit was payable upon the signing of the Restructuring Agreement and the balance on the “Final Payment Date” defined as meaning 31 March 1999. The computation of the “Guaranteed Profit” was set out in a memorandum of even date signed by the parties, one of the components being ‘land costs’.

5.By a Supplemental Agreement of 14 October 1988, the parties varied the date for the payment of the balance of the Guaranteed Profit. The original date was deferred and depended on when the Certificate of Compliance (“the Certificate”) would be issued. It was to be payable on 31 March 2000 if the Certificate was issued on or before 31 March 2000 and on 30 September 2000 if it was issued after 31 March 2000. There was also provision for the payment of further instalments on the original date and on or before 30 September 1999.

6.The Certificate was issued on 31 March 2000 on the plaintiff’s application. A dispute then ensued between the parties concerning the propriety of the plaintiff’s application. The first defendant objected to the plaintiff’s unilateral application and refused to pay the balance of the Guaranteed Profit on 31 March 2000. Under clause 2.01 of the Restructuring Agreement, it was the first defendant who had to use “its best endeavours” to obtain the Certificate on or before 30 September 1999.

7.That dispute led to a settlement agreement made on 31 May 2000, namely, “Agreement and Indemnity (3)” (“the Indemnity”). Clause 1 of the Indemnity records that in consideration of the plaintiff agreeing to waive all interest accrued on the balance of the Guaranteed Profit and “in full and final settlement of the obligations and liabilities of [the first defendant]” under, inter alia, clauses 2.02, 2.04 and 2.05 of the Restructuring Agreement, the first defendant undertook the completion of the “Outstanding Works” as specified in the Indemnity and to reimburse the plaintiff for all costs and expenses required to complete and/or discharge such works and obligations.

8.The first defendant’s stance is that prior to the Indemnity, it had no obligation to make resumption payments and, even if it had, such obligation was compromised under the Indemnity. Accordingly, one of the issues to be decided at trial is whether the Indemnity discharged the obligation (if any) on the part of the first defendant to make resumption payments.

The plaintiff’s summons to strike out

9.The judge acceded to the plaintiff’s request and struck out § 5 and part of § 6 of Mr Razack’s witness statement (collectively “the statement”) which read as follows:

“  5.  I recall about some time before the execution of the Agreement and Indemnity (3) dated 31 May 2000, both Mr. Lau Wah-Sum and myself went to the office of Mr. Victor T.K. Li at Cheung Kong Center and after some serious discussions, Mr. Victor T.K. Li agreed to pay the outstanding balance of the Guaranteed Profit in the sum of HK$1,051,628,400 on the basis that“無拖無欠，沒再有其他錢銀往來”and that Mr. Lau Wah-Sum was found agreeable to Mr. Victor T.K. Li’s statement.  Based on the aforesaid, I have instructed Ms. Marina Lo to prepare the settlement documentation.

6.  …  Pursuant to my understanding from Mr. Lau Wah-Sum’s conversations with Mr. Victor T.K. Li, Land Development Corporation would not ask for any further payment in relation to the Development…”

The certified translation of the Chinese characters read:

“There is no delay and owing, there are no other further money toing and froing.”

10.Mr Thomas SC who appeared for the defendants offered a 'free translation’ of the Chinese utterance as meaning

“let’s have an agreement that ends the financial relationship once and for all and we’ve got no money owing one way or the other.”

Suffice it to say that if the statement were admissible, the meaning of the utterance would be a matter for the trial judge.  For my part, I do not consider that the utterance is so clear or free from difficulty as to preclude argument as to its meaning.  I now turn to consider the exclusionary rule.

11.As Lord Hoffmann explained in Chartbrook Ltd v Persimmon Homes Ltd [2009] 3 WLR 267, § 42, the exclusionary rule:

“… excludes evidence of what was said or done during the course of negotiating the agreement for the purpose of drawing inferences about what the contract meant.  It does not exclude the use of such evidence for other purposes: for example, to establish that a fact which may be relevant as background was known to the parties, or to support a claim for rectification or estoppel.  These are not exceptions to the rule. They operate outside it.”

12.Mr Thomas submitted that the statement ought not to have been struck out because it does not give evidence of negotiation; rather, it states an agreed object of the parties - the drawing of a financial line. Importantly, that was said to precede the detailed negotiations. It was also said that the exclusionary rule has no application to evidence of the antecedent agreement, the object of which was “to get something settled once and for all without further financial ramifications”.

13.There are difficulties with Mr Thomas’ submissions. Sequentially, his case is predicated on the parties having reached ‘agreement’ (which, it has to be noted, formed no part of the defendants’ pleadings) before embarking on any detailed negotiations that eventually culminated in the Indemnity. Mr Razack’s statement does not support that analysis. According to Mr Razack, the utterance was made “after some serious discussions”. There was no mention of the parties’ agreeing anything before commencing detailed negotiations thereafter. In any event, it would not appear that the defendants were raising a case of an (unpleaded) antecedent agreement as such. The proposition finally advanced by Mr Thomas was that “evidence of anything said or done that tends to prove the genesis, aim or object of a contract is admissible so long as it was reasonably known or available to both parties.” That, of course, is not quite the same thing of there having been an antecedent agreement. In fact, in his reply, Mr Thomas described the statement as an objective “preamble” to negotiations.

14.For my part, I am unable to discern any valid basis for isolating the utterance from what was discussed at the meeting referred to in the statement. In my view, the utterance was plainly part and parcel of the discussions at Mr Li’s office. Unarguably, those were pre-contractual negotiations: the formal agreement, namely, the Indemnity, did not come into existence until some time thereafter, it being common ground that it was only subsequent to that meeting that solicitors were instructed to draft the Indemnity. Describing it as a “preamble” serves to obfuscate rather than to clarify the matter.

15.As Lord Wilberforce observed in Prenn v Simmonds [1971] 1 WLR 1381 at 1385D:

“Far more, and indeed totally, dangerous is to admit evidence of one party’s objective - even if this is known to the other party.  However strongly pursued this may be, the other party may only be willing to give a partial recognition, and in a world of give and take, men often have to be satisfied with less than they want.  So, again, it would be a matter of speculation how far the common intention was that the particular objective should be realised.”

16.Mr Thomas appeared to place reliance on a later passage (at 1385H) where Lord Wilberforce stated as follows:

“In my opinion, then, evidence of negotiations, or of the parties’ intentions, …ought not to be received, and evidence should be restricted to evidence of the factual background known to the parties at or before the date of the contract, including evidence of the “genesis” and objectively the “aim” of the transaction. ”

It will be seen that the language used in Mr Thomas’ formulation of his proposition has much in common with that passage but the passage itself has to be understood in the context of Lord Wilberforce’s earlier statement (at 1385A-B) that:

“It may be said that previous documents may be looked at to explain the aims of the parties.  In a limited sense this is true: the commercial, or business object, of the transaction, objectively ascertained, may be a surrounding fact.”

17.In the present case, as an objective fact, what led or gave rise to the Indemnity was the dispute over the propriety of the plaintiff’s action in obtaining the certificate. While that is a surrounding fact which, if relevant, may be taken into account when considering the meaning and effect of the Indemnity, I do not consider that Lord Wilberforce’s observations go further than that. They do not support or establish some wider or independent basis for admitting evidence of pre-contractual negotiations so long as they could be characterised as showing the aim or object of entering into the agreement, still less the aim or object of one party.

18.The House of Lords has recently affirmed the exclusionary rule in Chartbrook. After reviewing the authorities and criticisms of the rule made in cases such as Yoshimoto v Canterbury Golf International Ltd [2001] NZLR 523, 538-549 and academic literature, Lord Hoffmann affirmed the exclusionary rule and explained its rationale:

“38.  …pre-contractual negotiations seem to me capable of raising practical questions different from those created by other forms of background.  Whereas the surrounding circumstances are, by definition, objective facts, which will usually be uncontroversial, statements in the course of pre-contractual negotiations will be drenched in subjectivity and may, if oral, be very much in dispute.  It is often not easy to distinguish between those statements which (if they were made at all) merely reflect the aspirations of one or other of the parties and those which embody at least a provisional consensus which may throw light on the meaning of the contract which was eventually concluded.  But the imprecision of the line between the negotiation and provisional agreement is the very reason why in every case of dispute over interpretation, one or other of the parties is likely to require a court or arbitrator to take the course of negotiations into account.”

19.Lord Hoffmann then concluded that

“41.  …there is no clearly established case for departing from the exclusionary rule.  The rule may well mean …that the parties are sometimes held bound by a contract in terms which, upon a full investigation of the course of negotiations, a reasonable observer would not have taken them to have intended.  But a system which sometimes allows this to happen may be justified in the more general interest of economy and predictability in obtaining advice and adjudicating disputes.”

20.In my view, the statement falls squarely within the exclusionary rule and the judge was correct in ordering that it be struck out.

The defendants’ summons for discovery

21.The defendants seek specific discovery of the following documents:

“  1. The written advices of 2 counsel referred to in the Minutes of Meeting of Managing Board held on 18^th May 2002.

2.  All Minutes of Meeting of the Plaintiff and documents relating to their application and/or obtaining the Certificate of Compliance dated 31^st March 2002 issued by the Lands Department in respect of Inland Lot No.8827.”

22.The plaintiff resisted the application on the basis that the discovery sought was irrelevant and, in respect of legal advice, that it was also entitled to legal professional privilege. The judge agreed.

23.The issue in this case is a question of construction of the Indemnity, specifically, whether it had the effect of compromising all obligations of the defendants including the obligation (if any) to make payment or reimbursement to the plaintiff in respect of resumption payments.

24.The discovery sought relates to the plaintiff’s entitlement to obtain the certificate of compliance which is a different issue altogether. Quite apart from the fact that the plaintiff’s entitlement to obtain a certificate is no longer a live issue, none of the documents sought (all of which predate the Indemnity) relates to the quantification of the Guaranteed Profit. The plaintiff’s own understanding of its entitlement to obtain the certificate can have no relevance to the interpretation of the Indemnity. In my view, the judge was plainly correct to hold that the documents sought were irrelevant to the issue involved in this case.

25.In so far as legal professional privilege is concerned, Mr Thomas contended that privilege has been waived. He referred to Pozzi v Eli Lilly & Company (1986) Times LR 648, 3 December 1986 for the proposition that disclosure of part of a privileged document amounted to waiver of privilege of the whole contents. It was submitted that by summarising counsel’s advice in the minutes which were disclosed, the plaintiff waived its privilege.

26.Mr Yu SC who appeared for the plaintiff drew attention to the distinction between waiver of privilege in the particular document and waiver of privilege in associated documents which is collateral waiver. Mustill J explained the doctrine of collateral waiver in Nea Karteria Maritime Co v Atlantic and Great Lakes Steamship Corp [1981] Com LR 138 at 139 in these terms:

“… where a party is deploying in court material which would otherwise be privileged, the opposite party and the court must have an opportunity of satisfying themselves what the party has chosen to release from privilege represents the whole of the material relevant to the issue in question.  To allow an individual item to be plucked out of context would be to risk injustice through its real weight or meaning being mis-understood.”

27.The question is whether collateral waiver arises in the present case. It has been held that an application based on collateral waiver is premature unless it takes place after the evidence has been adduced at the trial, namely, after it has been “deployed in court” in the strict sense. See General Accident Fire and Life Assurance Corp Ltd v Tanter [1984] 1 WLR 100 where Hobhouse J reiterated that the underlying principle of the doctrine is one of fairness in the conduct of the trial and does not go further than that. For that reason, the defendants’ application based on collateral waiver was premature. In my view, privilege had not been waived.

28.I should mention that the judge’s order allowing the appeal from Master Wong was upon the plaintiff’s undertaking

“not to rely on the part of the minutes as used by the Defendants in support of the said Summons and the Plaintiff’s further undertaking to redact the same when the minutes are being used at the trial”

In my view, such an undertaking was unnecessary and I would release the plaintiff from the undertaking.

Mr Benjamin Yu SC, instructed by Messrs JSM, for the Plaintiff/Respondent

Mr Michael Thomas SC & Mr Godfrey Lam SC, instructed by Messrs Wilkinson & Grist, for the 1^st& 2^ndDefendants/Appellants