CROWNING SUCCESS LTD v. BRIGHTLAND CORPORATION LTD AND ANOTHER

HCA1445/2005
& HCA1540/2005

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NOS. 1445 AND 1540 OF 2550

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(Actions consolidated by Order of Master Lung dated 9 June 2006)

Dates of Hearing : 12, 13, 16, 17, 19 and 20 March 2009

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j u d g m e n t

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1. These proceedings concern a confirmor sale of commercial premises known as “Unit C” on the 45^th floor of Convention Plaza, 1 Harbour Road, which failed to complete on the due completion date of 22 July 2005.  

2. The 2^nd defendant (Banhart) was the head vendor who, on 30 December 2004, had agreed to sell the property to the 1^st defendant (Brightland) for $14.8 million.  The agreed completion date was to be 22 July 2005.  

3. On 18 January 2005, Brightland agreed to sell to the plaintiff (Crowning Success) under a sub-sale agreement for $17,800,000.  The completion date was the same, 22 July 2005.  As can be seen from the figures involved, the property market at the material time was rising.  The agreed valuation at the time of completion was $19.54 million.  

4. In December 2004, Unit C was an open space forming part of the 45^th floor.  There was no partitioning in place.  However, by a “rider” to the agreement, signed by both parties, a floor plan showing the location of the unit, its dimensions and shape was annexed to the Head agreement.  The plan also confirmed, as part of the “rider”, that the saleable area of the unit was not less than 144.402 sq. metres.  This was certified by a professional architect.  For ease of reference, a copy of the plan is included in this judgment as appendix “A”. 

5. The on-sale to Crowning Success was intended to be a back-to-back arrangement.  Put simply, Crowning Success agreed to buy from Brightland the same as Brightland had agreed to buy from Banhart. 

6. However, when Crowning Success came to the premises to inspect prior to completion on 22 July differences between the unit on site and the unit on plan were detected.  Concerned that it was not getting what it had agreed to purchase, measurements were taken and a further plan drawn up.  The plaintiff’s case is that Appendix “B” is what was being offered on the date of completion.  The key differences were :

(a)      the length of the unit was 12.95 metres not 14.806 metres as shown on appendix plan “A”;

(b)     the saleable area was calculated to be 128.2 sq. metres, not 144.402 as shown on appendix plan “A”;

(c)     the shortened length resulted in a strip (referred to on appendix plan “B” as the “indigo strip”) being excluded from the original unit.  The south-easterly end of the indigo strip was the curtain wall of the building comprising two windows.  These two windows were thus within the indigo strip and thus were being excluded from the unit being sold to Crowning Success.  The view through these windows was due east and afforded a view across the whole width of the harbour in an easterly direction.  Without those windows the view of the harbour was more limited.  When standing in front of the windows in the “pink” area on appendix plan “B”, the view to the east (i.e. to the left) was a partial view of the harbour over the Causeway Bay typhoon shelter.  The court, the parties and their legal representatives went on a “view” of the premises prior to trial.  Amongst other things, the view through the various windows was noted. 

7. For these reasons (and for one additional reason which I deal with later under the heading “Requisition”) Crowning Success did not complete with Brightland and Brightland were correspondingly unable to complete with Banhart. 

8. Banhart’s position is that the area of Unit C on 22 July was 144.402 sq. metres and that there was no agreement as to exactly where the 144 sq. metres would be located on the 45^th floor.  In particular, there was no agreement that Brightland was entitled to the habour view from the windows within the “indigo strip” area. 

9. On 27 July 2005, a plan was prepared on behalf of Banhart by a Mr Li Man Ying.  That plan is appendix plan “C” to this judgment.  It is Banhart’s case that plan C represents accurately what was offered at the proposed time of completion on 22 July.  It is Banhart’s case that their contractual obligation was to provide a unit of not less than 144.402 sq. metres which was approximately, but not exactly, located within the area shown on plan “A”.  Banhart submits that there was no obligation to include the two windows in the “indigo strip” neither was there any obligation to provide the space called the “indigo strip”.  The remaining significant difference between plan “A” and plan “C” is that the partition walls on plan C are double partition walls with an 800 mm cavity between the two partitions.  It is Banhart’s case that these partition walls were in place at the time of completion on 22 July.  

10. For the reasons which follow, my findings on the evidence are that on 22 July :

(i)      the saleable area of Unit C being offered by Banhart was only 128.2 sq. metres;

(ii)      the partition walls were not double cavity walls;

(iii)     the dimensions of the unit within the partitions were as measured by Alan Chu, a witness for Crowning Success, namely 12.95 metres by 9.9 metres;

(iv)     the shape of Unit C, being offered by Banhart, was a rectangle and was not the shape as shown on plan “A” which was a specific irregular geometric shape;

(v)     the north-eastern partition commenced a few inches to the south of the corner of the building thus blocking the view from the two windows within the “indigo strip”.  The two windows within the “indigo strip” formed part of the unit which Brightland had contracted to buy and they were therefore entitled to whatever view those windows provided; and

(vi)     the south-western partition wall had been positioned in line with the north-eastern wall of the lift lobby, as shown on plans A and B but not as shown on plan C.  

Reasons

11. (a)      Mr Li Man Ying’s plan was prepared on 27 July, five days after the completion date.  His plan records his findings on that day.  More importantly he was not called as a witness.  Banhart’s only witness as to fact was Ms Lillian Oung, the owner of the property (she was also the owner of the entire 45^th floor).  She was able to provide no good reason why Mr Li was not called as a witness.  Given the crucial factual issues at the heart of this case little weight can be attached to his written evidence.  Banhart’s expert witness was Mr Wong Man Hong.  He was only instructed in late 2008.  It is therefore difficult to understand on what basis he was able to state that he was in “full agreement” with Mr Li’s report. 

(b)     Given also that the existence of a serious dispute became glaringly apparent from 22 July onwards and that writs were filed within days, it is a serious weakness of Banhart’s case that no plan was prepared by them on 22 July, no photographs were taken, Mr Li did not give evidence and neither was any witness called from the company (“Marriots”) who built the partition walls, said by Banhart to be double walls with an 800 mm cavity.  It was further Banhart’s case that the cavity walls remained in position for a further six months before they were demolished.  It is even more perplexing that not a single photograph or independent plan exists in support of their existence.  Writs had been issued, battle lines drawn and litigation looming but no one took a photograph to support Banhart’s contentions. 

(c)      In order to achieve an area of 144.402 sq. metres plan “C” shows the south-westerly outer partition wall to be in line with the middle of the lift lobby, not the north-east wall of the lift lobby.  One photograph taken by Crowning Success on 22 July shows this patently not to be the case.  Mr King Wong, counsel for Banhart, attempted to argue that the angle from where the photograph was taken in the lift lobby might have produced a deceptive or misleading result.  I considered this submission to be valiantly made but utterly hopeless.  There was no doubt at all that, on 22 July, the south-westerly partition wall was where Crowning Success and Brightland said it was and not where Banhart claimed it was.  

(d)     When Mr Alan Chu was taking measurements on 22 July he said he saw no signs of double cavity partitioning.  I accept his evidence.  He was an impressive and reliable witness.  On the other hand, however, I find myself unable to rely on the evidence given by Ms Oung where it conflicts with the evidence of Crowning Success and Brightland.  She seemed unable to give short succinct answers to straightforward questions.  Her answers were often prolix and evasive.  On the key issue of the existence of cavity walls on 22 July, I was unable to accept her evidence.  Unfortunately there are no photographs from which it can be positively gleaned that only single partition walls were built but on the other hand such photographs that were taken both of the south-west wall and the north-east wall are consistent with (albeit not absolute proof of) the plaintiff’s case. 

(e)        Banhart’s explanation for building double cavity partitioning was unconvincing.  I accepted and rely upon the expert evidence adduced on behalf of Crowning Success and Brightland, which, taken as a whole, supports the following :

(i)      that 800 mm double cavity partition walls in commercial premises would be “unnecessary and non-sensical” (per Mr Wilson Ho, an acoustics expert);

(ii)      sufficient sound proofing could be achieved and usually is achieved with single partition walls of 105-134 mm thick.  It is normally only necessary to exceed this thickness for premises such as theatres or sound recording studios;

(iii)     double cavity walls were not necessary for fire resistance; and

(iv)     it would be most unusual for so much floor space to be wasted by the installation of such walls given the very high price of commercial property in the centre of Hong Kong. 

(f)      No evidence was adduced by Banhart of any written instructions to a contractor to build the walls as claimed. 

(g)      Even if the double cavity walls were built on 22 July (a contention which I specifically reject) the saleable area is still significantly short of 144 sq. metres.  The internal length of Unit C as measured by Alan Chu on 22 July was (wall to wall on site) 12.95 metres.  If one adds 400 mm x 2 (half the thickness of each cavity) the length of the unit becomes 13.75 metres.  The saleable area would therefore be 13.75 metres x 9.9 metres = 136.125 sq. metres. 

(h)      Banhart’s contention (made in evidence by Lillian Oung) that the location of Unit C as shown on the certified plan was only intended to be “approximate” is untenable for the following reasons :

(i)      the plan shows the unit to have a specific and unique geometric shape.  It is not a simple rectangle.  It fits into the angle of the building where there is a 135^o corner.  That shape can only fit into one location; and

(ii)      the head agreement is unequivocal as to the size, shape and location.  If the location was only approximate there would be no need for a “certified” plan.  The reason for having a plan was to avoid approximations not to permit them.  Banhart signed the rider which specifically deals with size, shape and location.  No attempt has been made to write anything on the plan or the rider to suggest there might be modifications or amendments or that it was only an approximation. 

12. As can be seen from the above findings and reasons, the key issues are entirely factual and, I so find, entirely in Crowning Success and Brightland’s favour. 

13. It follows that Banhart repudiated the head agreement, Brightland lawfully accepted the repudiation, Brightland were unable to deliver to Crowning Success who lawfully accepted Brightland resulting repudiation of the sub-sale agreement. 

Requisitions

14. This is a discrete issue.  My judgment is that even if none of the above issues had ever arisen, Crowning Success would have still been able to terminate the sub-sale agreement with Brightland because of their failure to provide good title having failed adequately to answer a requisition. 

15. In an assignment between Banhart and a company called Polytown Company Limited dated 19 September 1990, clause 2(2) provided that :

“the Purchaser shall not partition or sub-divide any individual floor of the Property into two or more separate smaller units for the purpose of sale assignment charge mortgage or other disposal thereof without the prior written approval of the Vendor.”

16. On 19 July 2005, the plaintiff’s solicitors wrote to Brightland’s solicitors requesting a certified copy of Polytown’s consent. 

17. Brightland’s solicitors immediately made the same request of Banhart’s solicitors.  Neither requisition was properly answered.  Moreover, no objection was raised as to the timing of the requisition being three days prior to completion.  Brightland therefore failed to show good title to Crowning Success. 

18. This is merely a second string to Crowning Success’s bow.  Given the strength of their case on the main issue it is somewhat academic. 

Crowning Success’s entitlement to a lien

19. Crowning Success seeks a declaration that it is entitled to a lien over the whole of the 45^th floor of the building limited to the amount of the lien that Brightland could claim against Banhart for breach of the head agreement.  Crowning Success seeks the lien directly against Banhart even though there is no contractual relationship between them. 

20. Its argument is that whatever interest Brightland acquired from Banhart was assigned (because it was a back-to-back confirmor sale) to Crowning Success in equity. 

21. There is authority for the argument that an equitable lien would be created, in such circumstances.  However, in the absence of a contractual connection, I decline to make the declaration in this case for two reasons.  Firstly, Crowning Success seeks the declaration in relation to the whole of the 45^th floor.  I am not minded to declare a lien over property which was not the subject of the transaction between any of the parties to the litigation.  Secondly, declaring a lien over “Unit C” would be unworkable.  “Unit C” was never defined in terms of undivided shares and a lien would be therefore unregisterable.  “Unit C” is also no longer a definable area or space and, moreover, is no longer owned by Banhart (the parties having earlier come to terms about the lifting of the lis pendens registered by Crowning Success).  It is because of these difficulties that Crowning Success seek a lien over the whole of the 45^th floor.  In my judgment such difficulties cannot be solved by a blanket lien over different property. 

Inducing a breach of contract

22. Crowning Success also claims directly against Banhart in tort for inducing a breach of contract.  There is no doubt that Banhart’s breach of the head agreement led inevitably to the breach of the sub-sale agreement.  I am satisfied also that Banhart knew of the sub-sale at the time of completion.  Lillian Oung claimed that she did not know, however correspondence between solicitors suggests otherwise.  However my evaluation of the whole of the evidence does not enable me to conclude that the motive for the breach by Banhart was in order to gain an economic benefit for itself.  I am not persuaded that Banhart’s breach was deliberately done for its own advantage.  Accordingly, the relief in this case must be confined to the return of deposits and damages for breach of contract. 

Relief

23. As to the measure of damages I consider it to be a straightforward arithmetic exercise.  The only three relevant figures are (i) Brightland’s purchase price, (ii) Crowning Success’s purchase price and (iii) the agreed valuation on 22 July 2005. 

24. Based on the agreement at trial that the property was worth $19.54 million on 22 July 2005, final judgment in the consolidated action shall be as follows :

1.       A declaration that the 2^nd defendant repudiated the head agreement.  

2.       A declaration that the 1^st defendant repudiated the sub-sale agreement.  

3.       An order that the 2^nd defendant returns the outstanding deposit of $857,750 to the 1^st defendant with interest at prime plus 1% from 22 July 2005.  

4.       The 2^nd defendant shall pay damages to the 1^st defendant in the sum of $4.74 million with interest at prime plus 1% from 22 July 2005 (the difference between the valuation on 22 July and the purchase price in the Head agreement).  

5.       An order that the 1^st defendant returns to the plaintiff the deposits of $2,670,000 with interest at prime plus 1% from 22 July 2005.  

6.       The 1^st defendant shall pay damages to the plaintiff in the sum of $1.74 million together with interest at prime plus 1% from 22 July 2005 ($19.54 million less $17.8 million).  

7.       The plaintiff’s and 1^st defendant’s costs both of the consolidated action and costs incurred prior to consolidation shall be borne by the 2^nd defendant.  

25. Orders as to costs and interest shall be on a nisi basis. 

Appendix Plan A

Appendix Plan B

Appendix Plan C