(1976) 1 CLR 76
1976 February 13
[*76]
[TRIANTAFYLLIDES, P., L. LOIZOU, HADJIANASTASSIOU, JJ.]
LEONIDAS KYRIAKIDES,
Appellant-Plaintiff,
v.
ANTONIS KYRIAKIDES,
Respondent-Defendant.
(Civil Appeal No. 4799).
Contract—Construction—Principles applicable—Subsequent actions of the parties ought not to be taken into account in resolving an ambiguity—In case of doubt a reasonable meaning is to be preferred to an unreasonable one—Unless words are so plain that there is no doubt about their meaning an interpretation which leads to extravagant results should be avoided—Position when one of the meanings is an ordinary meaning and the other is a term of art—Expression "lime industry" in the instant contract not used as a term of art.
Contract—Novation—Section 62 of the Contract Law, Cap. 149.
Words and Phrases—"Lime industry".
By virtue of an agreement entered into between the parties to this appeal in April, 1954, they divided between them immovable property jointly inherited by them from their father, with the result that though a farm known as "Filleri", became the property of the respondent, the lime industry installations therein became the property of the appellant.
Clause 2(C) of the said agreement provided that the appellant would have the right to use the existing or any to be constructed in the future, roads in the farm for the purposes of his lime industry, and that he would, also, receive such quantity of water from the water supply of the farm as would be needed for the furtherance of the said purposes.
In 1959-1960 the appellant discontinued the system of producing "quick lime" which was in operation when the parties entered into the agreement in 1954; and introduced the system of production of "hydrated lime" which requires much more quantity of water than "quick lime" which was produced under the discontinued system.[*77]
After the consumption of water by the appellant had increased and there was a dispute between them as to the quantity of water to be supplied, the appellant was paying to respondent a monthly sum for the supply of water.
The main issue in the appeal has been the exact meaning of the said clause 2(C) of the agreement and the interpretation of the expression "lime industry" therein. The trial Court reached the conclusion that the said clause should be construed in such manner as to entitle the appellant to receive the quantity of water that was needed for the purposes of his lime industry at the time of the signing of the agreement and not at any future time. It has been argued before the Court of Appeal that the conduct of the appellant, in paying for the supply of water, amounted to an implied admission that he was not entitled to receive, under the agreement, the extra and increased quantity of water required by the expanded installations and the new plant of his lime industry.
Held, (1) in construing a contract, a Court is not entitled to take into account, in order to resolve an ambiguity or for any other purpose, the conduct of the parties subsequent to the execution of the contract as throwing light on the meaning to be given to it. (See Wickman Machine Tool Sales Ltd. v. L. Schuler A.G. [1973] 2 All E.R. 39 (H.L.)).
(2) Where a word is capable of two meanings, one which gives a reasonable result, and the other a most unreasonable one, the reasonable one is to be preferred. In addition, if "one of the meanings is an ordinary meaning, and the other is a term of art, then it should be given its ordinary meaning, unless there is evidence from the surrounding circumstances that it was used by both parties as a term of art". (See Wickman Machine Tool Sales Ltd. v. L. Schuler A.G. [1972] 2 All E.R. 1173 at p. 1181); and unless words are so plain that there is no doubt about their meaning, an interpretation which leads to extravagant results should be avoided (see John Lee & Son (Grantham) Ltd. and Others v. Railway Executive [1949] 2 All E.R, 581).
(3) The parties to these proceedings did not use the expression "lime industry" (“βιομηχανία ασβεστοποιίας”) as a term of art, but only in order to denote the then existing in the farm of their father installations of lime industry and that it was not intended by them that there should be supplied water free of charge, by the respondent to the appellant, to meet the increased [*78] need for water of the subsequently expanded lime industry.
Appeal dismissed.
Per Curiam: We would be prepared to hold that the appeal should be dismissed, on the further ground that the original contract for the supply of water was substituted by a new contract between the parties, under which it was agreed that the increased quantity of water required by the appellant should be paid for, at first at the rate of £30.-and later, of £40, per month; there has, thus, taken place a novation of contract in the sense of section 62 of the contract Law, Cap. 149 (see, also, Pollock and Mullaon the Indian Contract and Specific Relief Acts, 9th Ed. p. 436).
Cases referred to:
The King v. Drake-Brockman and Others, Ex parte National Oil Pty. Ltd., 68 C.L.R. 51;
Watchman v. Attorney-General of the East Africa Protectorate [1919] A.C. 533;
Wickman Machine Tool Sales Ltd. v. L. Schuler A.G. [1972] 2 All E.R. 1173 at p. 1181 (C.A.); [1973] 2 All E.R. 39 at pp. 53-54 (H.L.);
John Lee & Son (Grantham), Ltd., and Others v. Railway Executive [1949] 2 All E:R. 581.
Appeal.
Appeal by plaintiff against the judgment of the District Court of Nicosia (Ioannides, Ag. D.P.C. and Kourris, D.J.) dated the 31st January, 1969, (Action No. 413/68) whereby plaintiff's claim for an order directing the defendant to supply the plaintiff with such quantity of water from his chiftlic "Filleri", at Kythrea, as is necessary for plaintiff's lime industry in accordance with the provisions of a written agreement entered into between the parties in April, 1954, was dismissed.
G. Cacoyiannis with J. Mavronicolas and A. Dikigoropoulos, for the appellant.
X. Clerides, for the respondent.
Cur.adv. vult.
The judgment of the Court was delivered by:-
TRIANTAFYLLIDES, P.: The appellant, who is the brother of the respondent, has appealed against the dismissal by the District Court of Nicosia of an action brought by him against [*79] the respondent; by means of such action the appellant was seeking against the respondent the following remedies :-
"A.An order of the Court directing the defendant to supply the plaintiff with such quantity of water from his chiftlic 'Filleri', at Kythrea, as is necessary for the plaintiff's lime industry in accordance with the provisions of a written agreement entered into between the parties in April, 1954, or, alternatively,
B.An order directing the defendant to pay to the plaintiff the sum of £40 per month as from 25.8.1967,until he complies with the terms of the aforesaid agreement between the parties.
C.Damages for breach of contract."
The main issue in this case has been the exact meaning of clause 2(C) of the agreement entered into between the parties in April 1954; this clause provided that the appellant would be entitled to receive from a source of water supply belonging to the respondent such quantity of water as would be needed for the purposes of the lime industry of the appellant.
It is convenient to explain, at this stage, that, by virtue of the said agreement, the appellant and the respondent had divided between them immovable property jointly inherited by them from their father, with the result that though a farm known as "Filleri", in the area of Kythrea, became the property of the respondent, the lime industry installations therein became the property of the appellant.
It was provided by clause 2(C) of the agreement that the appellant would have the right to use the existing, or any to be constructed in the future, roads in the farm for the purposes (“δια τους σκοπούς”) of his lime industry, and that he would, also, receive such quantity of water from the water supply of the farm as would be needed for the furtherance of the said purposes (θα λαμβάνη επίσης τοιαύτην ποσότητα ύδατος εκ του ύδατος του τσιφλικιού οία τα ήτο αναγκαία δια την εξυπηρέτησιν των αυτών ως άνω σκοπών”).
In clause 2(B) of the agreement it was stated that it was to be understood that the lime industry included all kilns, machinery, implements, tools, necessaries or things related to it (“Νοείται ότι η Βιομηχανία Ασβεστοποιίας περιλαμβάνει πάντα τα προς αυτήν σχετιζόμενα καμίνια, μηχανήματα, σκεύη, εργαλεία, χρειώδη ή πράγματα")[*80].
It is useful, too, to refer to the history of the actual mode of operating the lime industry in question, as such history is set out in the judgment of the trial Court :-
"It is common ground that the father of the parties was engaged in the lime industry and that he was using kilns for the purpose of manufacturing lime. The father of the parties died on the 23rd February, 1950, whereupon both the plaintiff and the defendant used to run the lime industry together. When they took over, the system used for heating the lime stones, was the so called steam system, by virtue of which a mixture of steam and fuel oil was forced into the kilns to heat the lime stones. Shortly after the death of their father the parties entered into a partnership with the Kythrea Lime Company which lasted from the 1st May, 1951 to the 31st December, 1952. When this partnership commenced the plaintiff's kilns were operated by means of a locally made boiler for producing steam, as described hereinabove. The partnership discarded the boiler as both inefficient and dangerous and they installed in its place the fan system which was more practical to use and more economical to run and also safer. Under the fan system heat was produced by means of compressed air instead of steam. And it was this system which was in operation when the parties entered into the agreement, Exhibit 1.
In 1959-1960 the plaintiff installed the so called hydration plant. By this system the lime already produced in the form of quick lime is further processed by being ground to powder. Then it is cleaned (svinete) with water and then it is placed in bags and is ready for use without any further cleaning (svisimo). It is common ground that the production of hydrated lime requires much more quantity of water than that of quick lime".
The trial Court leached the conclusion that clause 2(C) of the agreement should be construed in such a manner as to entitle the appellant to receive the quantity of water that was needed for the purposes of his lime industry at the time of the signing of the said agreement, and not at any future time.
The trial Court stressed in its judgment that if the parties [*81]had intended that the appellant would be entitled to receive more water at some future date upon the happening of a certain event, such as the expansion of his lime industry, or the installation of different machinery requiring more water, or the addition to it of plant for the processing of lime, they would have expressly stated this in their agreement.
Furthermore, the trial Court accepted the evidence of witness Makris, who was called by the respondent, to the effect that the hydration system, subsequently introduced by the appellant, involves two stages, namely, first, the production of quick lime from lime stones, and, secondly, the processing of the quick lime into hydrated lime, and that these two stages are quite distinct from each other, so that they are, in effect, two different industries. On the basis of this evidence, it was held, in the absence of any evidence to the contrary, that the words "lime industry" in clause 2 (C) of the agreement between the parties did not include the processing of quick lime into hydrated lime, but only the production of quick lime.
The above finding of the trial Court was strongly contested by counsel for the appellant who insisted that the notion of "lime industry" includes the production of hydrated lime; he cited, in this respect, by way of analogy, various passages from Words and Phrases Legally Defined, 2nd ed., vol. 1, p. 270, concerning the expressions "Mining Industry", "Mine", "Mining operation"; a case which has been referred to in relation to the above expressions is The King v. Drake-Brockman and Others, Ex parte National Oil Pty. Ltd., 68 C.L.R. 51, where (at p. 59) Starke J. stated the following :-
"Expressions such as the 'mining industry', the 'gold-mining industry', the 'coal-mining industry', the 'shale-mining industry', the 'shale-oil industry' (See Encyclopaedia Britannica), the 'iron industry', the 'iron and steel industry', and so forth, are not technical expressions, but popular general descriptions without any definite or clear boundary lines. The character of the operations, their connected processes and usage must, in the end, determine the industrial classification under which the operations should be placed. Thus the very general description 'the mining industry' would include not only mining for gold, silver and the base metals, but the various processes by which those metals are recovered. So the gold-mining industry would include mining for gold and the processes [*82]by which the gold is recovered, e.g., crushing, the use of tables, or the cyanide or any other process. Again, if we take the iron and steel industry, the multitude of processes used in that industry would all be included in the general description of the industry. But it was said that the coalmining industry does not include the making of gas. Ordinarily that is quite true, because coal is ordinarily produced and sold as a commodity for various uses. If a coal-mining company produced gas from coal for its mining of other operations, then that operation might rightly be described as part of the coal-mining industry. Indeed, a shift of industrial operations might well bring the production of gas into the coal-mining industry."
Of course, the interpretation of each such expression has to be made in its proper context, and the paramount task in the present case is to interpret the expression "lime industry" in relation to the agreement between the parties.
The trial Court found, on evidence which it treated as credible and on the basis of correspondence between the parties, that, after the consumption of water by the appellant had considerably increased through the installation of the hydration plant, there was a dispute between the parties as to the quantity of Water to be supplied for this purpose by the respondent under the agreement, and that, eventually, since 1960 the appellant was paying to the respondent initially £30 per month for the supply of water, and later on £40 per month, and that, eventually, the appellant ceased buying water from the respondent because he could get it on better terms from elsewhere.
It has been argued before us that this conduct on the part of the appellant amounted to an implied admission that he was not entitled to receive, under the agreement, the extra and increased quantity of water required by the expanded installations and the new plant of his lime industry.
It is correct that in Watchamv. Attorney-General of the East Africa Protectorate, [1919] A.C. 533, it was held that, when an instrument contains an ambiguity, evidence of user under it may be given in order to show the sense in which the parties used the language employed; and this case was referred to in Wickman Machine Tool Sales Ltd. v. L. Schuler AG., [1972] 2 All E.R. 1173, where it was held that when a contract was capable of two meanings, it was permissible at common [*83]law to look at the way in which the parties themselves had acted on it; but, later on, when the case of Wickman, supra, was taken on appeal to the House of Lords (for the relevant report see [1973] 2 All E.R. 39) it was held that in construing a contract, a Court is not entitled to take into account, in order to resolve an ambiguity or for any other purpose, the conduct of the parties subsequent to the execution of the contract as throwing light on the meaning to be given to it; and the earlier case of Watcham, supra, was doubted and distinguished; in his judgment (at pp. 53-54) Lord Wilberforce stated:-
"The first qualification involves the legal question whether this agreement may be construed in the light of certain allegedly relevant subsequent actions by the parties. Consideration of such actions undoubtedly influenced the majority of the Court of Appeal [1972] 2 All E.R. 1173, to decide, as they did, in the respondents' favour: and it is suggested, with much force that, but for this, Edmund Davies LJ would have decided the case the other way. In my opinion, subsequent actions ought not to have been taken into account. The general rule is that extrinsic evidence is not admissible for the construction of a written contract; the parties' intentions must be ascertained, on legal principles of construction, from the words they have used. It is one and the same principle which excludes evidence of statements, or actions, during negotiations, at the time of the contract, or subsequent to the contract, any of which to the lay mind might at first sight seem to be proper to receive. As to statements during negotiations this House has affirmed the rule of exclusion in Prennv. Simmonds, [1971] 3 All E.R. 237, and as to subsequent actions (unless evidencing a new agreement or as the basis of an estoppel) in James Miller and Partners Ltd. v. Whitworth Street Estates (Manchester) Ltd., [1970] 1 All E.R. 796.
There are of course exceptions. I attempt no exhaustive list of them. In the case of ancient documents, contemporaneous or subsequent action may be adduced in order to explain words whose contemporary meaning may have become obscure. And evidence may be admitted of surrounding circumstances or in order to explain technical expressions or to identify the subject-matter of an agreement: or (an overlapping exception) to resolve a latent ambiguity. But ambiguity in this context is not to be [*84] equated with difficulty of construction, even difficulty to a point where judicial opinion as to meaning has differed. This is, I venture to think, elementary law. On this test there is certainly no ambiguity here.
The arguments used in order to induce us to depart from these settled rules and to admit evidence of subsequent conduct generally in aid of construction were fragile. They were based first on the Privy Council judgment in Watchamv. Attorney-General of East Africa Protectorate, [1919], A.C. 533, not, it was pointed out, cited in Whitworth's case, [1970] 1 All E.R. 796. But there was no negligence by counsel or incuria by their Lordships in omitting to refer to a precedent which I had thought had long been recognised to be nothing but the refuge of the desperate. Whether in its own field, namely, that of interpretation of deeds relating to real property by reference to acts of possession, it retains any credibility in the face of powerful judicial criticism is not before us. But in relation to the interpretation of contracts or written documents generally I must deprecate its future citation in English Courts as an authority. It should be unnecessary to add that the well-known words of Lord St. Leonards(Attorney-General v. Drummond, (1842) Dr. &War 353 at 368), 'tell me what you have done under such a deed, and I will tell you what that deed means' relate to ancient instruments and it is an abuse of them to cite them in other applications. Secondly, there were other authorities cited, Hillas& Co. Ltd. v. Arcos Ltd., [1932] All E.R. Rep. 494, and Foley v. Classique Coaches Ltd., [1934] 2 K.B. 1. But, with respect, these are not in any way relevant to the present discussion, and the judgment of Lawrence J. in Radio Pictures Ltd. v. Inland Revenue Comrs, [1938] 22 Tax Cas. 106, so far as it bears on this point was disapproved in the Court of Appeal and in my opinion was not correct in law".
In relation to the Wickmancase it is useful to quote the following passage from the Law Quarterly Review, Vol. 89 [1973], pp. 464-465:-
"In L. Schuler A.G. v. Wickman Machine Tool Sales Ltd. [1973] 2 W.L.R. 683 it was finally established by the House of Lords that, as a matter of general principle of English law, in construing a written contract the conduct of the [*85] parties subsequent to the execution of the contract cannot be taken into account.
The law is different in the United States of America where Corbin, on Contracts (1960), vol. 3, section 558 summarises it as follows:
In the process of interpretation of the terms of a contract the Court can frequently get great assistance from the interpreting statements made by the parties themselves or from their conduct in rendering or receiving performance under it ………In cases so numerous as to be impossible to full citation here the Courts have held that evidence of practical interpretation and construction by the parties is admissible to aid in choosing the meaning to which legal effect will be given. In France construction of a contract is within the sole province of the Judges of fact who are entirely free to use whatever material seems relevant to them…………………………………………………………………………………………………………………………………………………………………………………….
The rule is the same in Germany where since 1888 it is established that even statements made by one of the contracting parties to a third person about the content of the contractual intentions are admissible guides to interpretation.
…………………………………………………………….
It is probably fair to suggest that the principal reason for the English rule was crisply formulated by Lord Simon of Glaisdale (at p. 705):- 'subsequent conduct is equally referable to what the parties meant to say as to the meaning of what they said'. But this explanation is unlikely to tell the whole story, for it is a question of fact and, therefore, a matter of evidence whether the conduct refers to the one or the other thing or whether it sprang from conviction or error. The real reason for the rule must have much deeper foundations. As, in particular, Lord Wilberforce and Lord Simon of Glaisdaleemphasised, it is no more than an aspect of the rule rendering extrinsic evidence inadmissible: 'it is one and the same principle which excludes evidence of statements, or actions, during negotiations, at the time of the contract, or subsequent to the contract' (p. 698 per Lord Wilberforce)".
Another relevant rule concerning the interpretation of [*86] contracts is that in case of doubt a reasonable meaning is to be preferred to an unreasonable one. In the Wickmancase, supra, at the time when it was decided by the Court of Appeal (and on this point it has not been reversed by the House of Lords) Lord Denning M. R. said (at p. 1181):-
"………..Where a word like this word 'condition' is capable of two meanings, one of which gives a reasonable result, and the other a most unreasonable one, the Court should adopt the reasonable one. In addition, if one of the meanings is an ordinary meaning, and the other is a term of art, then it should be given its ordinary meaning, unless there is evidence from the surrounding circumstances that it was used by both parties as a term of art".
Also, the earlier case of John Lee &Son (Grantham) Ltd. and Others v. Railway Executive, [1949] 2 All E.R. 581, supports the proposition that unless words are so plain that there is no doubt about their meaning, an interpretation which leads to extravagant results should be avoided.
In the light of the above legal principles, we have formed the view—admittedly not without some difficulty—that the parties to these proceedings did not use the expression "lime industry" (“βιομηχανία ασβεστοποιίας”) as a term of art, but only in order to denote the then existing in the farm of their father installations of lime industry and that it was not intended by them that there should be supplied water free of charge, by the respondent to the appellant, to meet the increased need for water of the subsequently expanded lime industry.
In the light of this conclusion we are of the view that the action of the appellant was rightly dismissed as there had been no breach of contract on the part of the respondent, who never refused to supply to the appellant the normal, as agreed, quantity of water.
Furthermore, we would be prepared to hold that the action should have failed, and the appeal should be dismissed, on the further ground that, as submitted by counsel for the respondent, the original contract for the supply of water was substituted by a new contract between the parties, under which it was agreed that the increased quantity of water required by the appellant should be paid for, at first at the rate of £30, and, later, of £40, per month; there has, thus, taken place a novation of contract [*87] in the sense of section 62 of the Contract Law, Cap. 149 (see, also, Pollock and Mulla on the Indian Contract and Specific Relief Acts, 9th Ed., p. 436); and it should be noted that the issue of novation has been expressly pleaded by the respondent (see paragraph 2(b) of his statement of defence).
This appeal is, therefore, dismissed; but, in view of the family relationship between the parties, we are not inclined to make any order as to its costs.
Appeal dismissed. No
order as to costs.
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