LETTER OF THE LAW

Disputing the meaning of words in contractual clauses

Can a 'house' be taken to mean a block of flats? That's what a court had to contend with recently

PUBLISHED : Tuesday, 09 July, 2013, 12:00am
UPDATED : Tuesday, 09 July, 2013, 5:55am

Land disputes are very often about the interpretation of the words used in a lease or some other document. Dealings with land are based on the bargain struck between two parties, such as a buyer and seller or a landlord and tenant. The parties have to spell out the terms of their agreement.

Lawyers have to be able to understand, think through and then express what the parties have in mind. That is a large part of what they are paid for.

But no matter how well these tasks are performed, there will still be room for dispute as to what the parties had in mind.

The fact that a long time may elapse between the agreement and the dispute can make things more difficult. The courts may then be called on to interpret the words used by the parties, perhaps decades ago.

In a case between Fully Profit (Asia) and the Secretary for Justice, the Court of Final Appeal recently had to resolve just such a dispute. The question was whether the word "house" can include a block of flats.

Fully Profit, a developer, had bought several neighbouring plots of land, each of which was the subject of a separate government lease. Each lease contained a promise that not more than one house would be built on it.

The developer wanted to tear down five houses already on the land and build a single residential block that would straddle the plots. Would this amount to a breach of the promise not to build more than one "house"?

You might think the answer is to be found in a dictionary. You might think the judge should ask whether the word "house" usually refers, among other things, to a block of flats.

But that was not the court's starting point. The focus was on the intention of the parties rather than the conventional meaning of the words they used.

To understand this intention, the court asked what a reasonable person would think that the parties intended. Words do not have a fixed meaning; their interpretation can vary to reflect the parties' underlying intentions.

The words used are the obvious starting point in contractual interpretation but, as this case shows, taken alone, they may not be a sure guide as to what the parties intended.

So what else can the court look at in its quest to discover the common intention of the parties?

The other terms of the contract may give the judge some insight as to what the parties had in mind. More broadly, the court can look at the relevant aspects of the context in which the parties operated at the time that the lease or other document was entered into.

In this case, the relevant context included the fact that when the parties used the word "house", they probably had in mind the houses that had just been built. More probably than not, they were saying only one house like the house already on the land could be built on each plot.

The court decided that a block of flats was not the sort of "house" the parties had in mind. If the developer wanted to carry on with its scheme, it would have to negotiate a release of the restriction.

Professor Michael Lower of the Faculty of Law at Chinese University teaches and researches land law