Federal Court Clarifies Law on Deeming Provision

May 2016
by Wong Mei Ying, Yoon Ming Sun, Lee Sen Ching

The information in this article is intended only to provide general information and does not constitute professional advice or legal opinion.

@2018 Chooi & Company + Cheang & Ariff.
All rights reserved.

The Federal Court considered whether a deeming provision containing the words “shall be deemed” in an agreement was rebuttable or conclusive in the case of Lucy Wong Nyuk King & Anor v Hwang Mee Hiong [2016] 4 CLJ 813.

Facts

The defendants or appellants in this case (“Vendors”) were the co-proprietors of a property. Pursuant to a sale and purchase agreement dated 23 September 2008 (“SPA”), the plaintiff or respondent (“Purchaser”) agreed to purchase the property from the Vendors and paid a deposit for the purchase.

Clause 5 of the SPA, which was the subject matter of the contention, stated that vacant possession of the property shall be deemed to be delivered by the Vendors to the Purchaser upon signing of the SPA. Clause 16 of the SPA provided that the risk and benefit of any insurance on the property remain with the Vendors until delivery of vacant possession whereupon the risk shall pass to the Purchaser and that the Purchaser shall be responsible for arranging insurance coverage on the said property with effect from the date of delivery of vacant possession.

At all material times, the Purchaser’s husband was renting the property from the Vendors and the tenancy was to expire on 31 December 2012. Upon execution of the SPA, the Vendors did not terminate the tenancy and the tenancy continued until the occurrence of a fire on 5 November 2008 rendering the property unfit for occupation. It should be noted that the Vendors had claimed and received compensation from the insurer for the damage to the property caused by the fire.

Decision

The Federal Court found that in the circumstances of the case, the deeming provision in clause 5 of the SPA was not conclusive and that like any other presumption, rebuttable. This affirmed the decisions of the High Court and Court of Appeal. In reaching its decision, the Federal Court held that:

(a) A contract must be construed as a whole, in order to ascertain the true meaning of its several clauses, and also, so far as practicable, to give effect to every part of it. Each clause in an ordinary commercial contract should be so interpreted so as to bring them into harmony with the other clauses of the contract;

(b) If something is "deemed" in a situation where it is clearly wrong or inappropriate, which would lead to injustice or absurdity, the application of the deeming provision should be limited to the extent needed to avoid such injustice or absurdity;

(c) The Vendors had the benefit of the risk in the property and received compensation from the insurer for the damage to the property caused by a fire. It would be a different thing if the Purchaser had accepted the risk at the time of signing the SPA;

(d) The effect of clause 16 of the SPA is that the expression 'shall be deemed' in clause 5 was only meant to be a presumption that was rebuttable, for otherwise it would lead to injustice or absurdity in a situation where it was found that vacant possession of the property had never been delivered to the Purchaser; and

(e) The High Court was justified in finding that the Vendors, by maintaining the rights belonging to a registered proprietor of the property until it was destroyed by a fire, had not relinquished their rights to the occupancy of the property through their tenant to the Purchaser. The Vendors, by not terminating their relationship with the tenant or assigning the benefit of the tenancy to the Purchaser, had acted inconsistently and in contradiction with the deeming provision of delivery of vacant possession under clause 5 of the SPA.

The case highlights the importance of careful drafting to avoid the pitfall of relying on a deeming provision when there are facts or other provisions in an agreement which contradict the deeming provision.


The information in this article is intended only to provide general information and does not constitute professional advice or legal opinion.

@2018 Chooi & Company + Cheang & Ariff.
All rights reserved.