SUN CROWN TRADING LTD v. HOLYROOD LTD

CACV 64/2012

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 64 OF 2012

(ON APPEAL FROM HCA NOS. 1158 AND 1159 OF 2007)

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HCA 1158/2007

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1158 OF 2007

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JUDGMENT

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Hon McWalters J (giving the judgment of the Court):

Introduction

1.  This is an appeal from a judgment of Deputy High Court Judge Carlson (“the judge”) handed down on 1 March 2012 in respect of a trial that took place in September and November 2011.

2.  The plaintiffs were purchasers of flats in a residential complex developed by the defendant which is wholly owned by Paladin Limited, a listed company.  The person who was standing behind the defendant was Ms Lilian Oung who by the time of trial had been incapacitated by a stroke and was unable to testify. The residential complex is known as “The Oasis” and is situated at 8-12 Peak Road, Hong Kong Island.  It comprised two blocks of flats, Blocks A1 and A2, a stand-alone house and a further block comprising the swimming pool, a clubhouse and the electrical and mechanical services for the development.  Sun Crown Trading Limited (“the 1^st plaintiff”) purchased flat 6B of Block A2 and Gateway International Development Limited (“the 2^nd plaintiff”) purchased flat 6A of Block A2.

3.  The two plaintiffs purchased their flats “off the plan” and were required to pay the balance of the purchase price on the issue of an Occupation Permit (“OP”).  This they did but the plaintiffs claimed that at the time of the hand-over of the flats they, and the development generally, were not fit for human habitation and not rentable.  In a joint action the two plaintiffs sued the developer firstly for breaches of the sale and purchase agreement (“SPA”) under which they purchased the flat, secondly under the Deed of Mutual Covenant (“DMC”) for the development and thirdly at common law under the tort of nuisance. They alleged that the flats were not fitted out by the defendant to the appropriate standard (“the Fittings Claim”) that facilities for the use of the occupants were not completed (“the Facilities Claim”) and thirdly, the on-going works that were necessary to complete the development transformed the development into a building site and rendered the complex uninhabitable (“the Nuisance Claim”).

4.  The bulk of the damages they claimed was for loss of rental income but there were also claims for the cost of bringing the poor quality fittings of their flats up to an appropriate standard and for the failure to have the swimming pool and clubhouse fitted out and in operation on completion of the conveyances.

5.  In his judgment the judge found for the plaintiffs and in HCA 1158/2007 awarded total damages of $4,953,395 to the 1^st plaintiff and in HCA 1159/2007 total damages of $4,967,189 to the 2^nd plaintiff and costs to be taxed on an indemnity basis.

6.  By its Notice of Appeal dated 28 March 2012 the defendant appealed both liability and quantum.

7.  At the hearing of the appeal we reserved our judgment which we said would be handed down at a later date.  This is our judgment.

The Trial

8.  Although the plaintiffs relied on three different bases of liability, each of them was founded on the same factual allegation, namely that when the flats were handed-over to them for occupation they were not fit for habitation as they had not been finished to an appropriate standard and there was substantial construction work uncompleted which resulted in the development remaining a building site, with all that that entailed, for a further three years.  The continuing construction work, it was said, constituted a nuisance and rendered the development uninhabitable and untenantable.

9.  Counsel for the plaintiffs submitted, and the judge accepted, that there were eight issues that fell for his determination.  They were:

	(i)	whether the defendant did, in fact, carry out the complained of works after completion of conveyances to the plaintiffs;
	(ii)	whether there was an implied term in the SPA that the plaintiffs’ units would be fit for luxurious living;
	(iii)	assuming (i) above is answered affirmatively, whether these works constituted breaches of the express and implied terms of the SPA and DMC and amounted to an actionable nuisance;
	(iv)& (v)	whether the works were carried out at the request of the Property Manager and/or the co-owners and, if so, whether that amounted to a valid consent or waiver by the plaintiffs so as to constitute a defence;
	(vi)	whether the works were upgrading works, and if so, this would amount to a valid defence;
	(vii)	assuming (iii) above is answered affirmatively, whether the works were causative of the lost rental income; and
	(viii)	whether the plaintiffs had reasonably mitigated their losses.

10.  The Amended Defence raised six issues, namely:

(i) the post-conveyance works were only upgrading/minor improvement works;

(ii) the works were of a temporary nature;

(iii) drainage work carried out was done at the request of the Property Manager and did not affect the plaintiff s’ units;

(iv) the decoration works were internal and carried out during legally authorized hours;

(v) work on the house would not affect residents of Blocks A1 and A2; and

(vi) the plaintiffs failed to mitigate their losses.

11.  In explanation of the stop/start nature of the post-conveyance construction work it was suggested at trial by the defendant that the development could be regarded as a phased development, but on this issue the judge had no difficulty finding against the defendant.

12.  Placing these issues in a time-line context, the key dates are as follows:

SPA	:	25/11/04 for both flats
Assignment	:	19/7/05 (Flat 6A) and 19/8/05 (Flat 6B)
OP issued by Buildings Authority	:	24 March 2005
Certificate of Compliance by Lands Department	:	30 June 2005
Decoration of Flat 6B finished	:	March 2006
Decoration of Flat 6A finished	:	April 2006
Date occupied/let	:	October 2008 (Flat 6A, occupied) and 9 September 2008 (Flat 6B, let)

13.  The trial lasted 19 days with testimony from six factual witnesses and four expert witnesses.  There were photographs of the development taken from the time the OP was issued to the present day.  These, of course, supplemented the evidence of the witnesses and provided a photographic record of the progress of the development.  There were also two videos adduced that had been produced for the purpose of publicizing each of the plaintiffs’ flats for rental. These videos were produced in February 2006 (Flat 6B) and July 2007 (Flat 6A). They were shown to us in the course of hearing the appeal.  Additionally, there were more than twenty box files of documentary exhibits.  It should also be mentioned that in the course of the trial the judge conducted a site visit to the development.

14.  Evidence was adduced of the history of the development and this included evidence on the financial woes of the defendant.  This explained, for example, why there were changes in the construction companies carrying out the work.  Up to the obtaining of the OP the work was carried out by Woon Lee Construction Limited (“Woon Lee”).  In March 2005 it was replaced by Marriott Engineering and Construction Company Limited but in 2006 this company was itself replaced by Woon Lee (HK) Limited (“WLHK”).  One of the contracts under which WLHK performed work was for $40 million and WLHK was still performing its obligations under this contract in early 2008.

15.  A key witness on whom the judge relied was a witness of the defendant, Mr Li Man-ying, who testified that he was engaged to ensure that the OP was obtained. He identified the minimum work necessary in order to obtain the OP and this meant that some work which had been planned to be done was deferred.  This included the cladding of Block B and the E & M Block which housed the clubhouse. As a result, these buildings were constructed to a bare concrete finish.  Mr Li described the defendant as at this time being financially in a dangerous position.

16.  The documentation showed that these deferred works were commenced after the issue of the OP when the defendant was in funds from the payments by the plaintiffs of the balance of the purchase monies.  The defendant then characterised these works as “upgrading” or “improvement” works.

The Trial Judge’s Judgment

17.  In a nutshell the judge found that the defendant developer embarked upon the construction of this property with insufficient funds hoping to complete the development with monies obtained from purchasers.  The defendant could not require purchasers to pay the balance of the purchase price until the Buildings Department had granted it an OP.  However, the defendant needed money urgently and so, in effect, did the minimum work needed to obtain the OP and did it to a poor standard.  This left work outstanding and a further 3 years after the conveyance of the flats was needed for building work to finish.

18.  On the first issue of whether the defendant did, in fact, carry out the works of which complaint was made, the judge answered the question in the affirmative, saying at paragraph 48 of his judgment:

“I find as a fact that these very extensive works, which rendered the whole Development an on-going construction site, were carried out by the defendant over a period of three years from mid-2005 to mid-2008. This is a question of fact which I resolve in the plaintiffs’ favour.”

19.  On the second issue of whether there was an implied term in the SPA that the flats would be fit for luxurious living, the judge found that there was such an implied term.  In respect of the fourth and fifth issues of who carried out the works, the judge found as a fact that it was the defendant who commissioned the works and controlled the purse strings.  On the evidence the judge found that none of the works would have proceeded without the permission of Ms Lilian Oung.  He answered questions four and five in the negative.

20.  As to the sixth issue he found as a fact that the works were not upgrading works “but outstanding works put aside by Miss Oung as a cost‑cutting measure until after the OP had been issued, following which she would have had available to her more funds represented by the balance of the purchase price paid by the plaintiffs and any other purchasers who had contracted to buy units at this Development,” [1] He, in fact, traced the works back to Woon Lee’s original March 2004 quotation.

21.  It was in order to determine what was intended for this development that the judge found it necessary to explore the history of the development.  By so doing he was able to come to an understanding of why it was that the state of the development at the time of assignment of the flats fell so far short of the original vision and a determination of the nature of the post‑conveyance works. Thus, he concluded at paragraph 69 of his judgment:

“The simple fact of the matter is that the defendant failed to deliver a completed Development as it had agreed to do in the SPA (save no doubt, as to small touching up work and rectification works which one would expect to find in a “snagging list”).  This being so, it had to face up to and complete a very extensive programme of works with all the noise, rubble and dust that one expects to find on a busy building site which, in the event, went on for three years after completion of the conveyances to these plaintiffs.”

22.  The evidential basis for these findings of facts was the testimony of the defendant’s witness, Mr Li and the documentary exhibits.

23.  The judge then went on to consider and reject an argument advanced by the defendant that by virtue of clause 4(1)(c), read with clause 4(7), of the SPA the development was conclusively deemed, by agreement between the parties to have been completed upon the issue by the Director of Lands of a Certificate of Compliance.  These clauses, so the argument ran, when operating in conjunction with the doctrine of merger had the effect of making the completion of any communal facilities the responsibility of the Property Manager under the DMC.

24.  The judge accepted that this argument was correct to the extent that there was no continuing obligation on the defendant to maintain the communal and recreational facilities, which was the Property Manager’s duty under the DMC, but held that this was quite a different matter “from the defendant’s obligation to build and provide completed communal and recreational facilities on the conveyance of the properties, which it signally failed to do” [2]

25.  The judge then went on to answer question (iii) and find that there was an overwhelming case establishing the defendant’s liability for breaches of the SPA, under the tort of nuisance and as co-owner of the development for breaches of the DMC.  Underlying these conclusions were findings that:

(i) the development was a full scale construction site;

(ii) the sheer weight of unfinished and amending works made it impossible for anybody to live at the development for the first three years after completion of the conveyances;

(iii) the development was avoided by estate agents; and

(iv) the building works prevented the plaintiffs from living there or renting their flats out for profit.

26.  These conclusions also went to the judge’s affirmative answer to question (vii) that the works were causative of the plaintiffs’ lost rental income.

27.  The judge then proceeded to an assessment of damages.  He first dealt with the loss of rental income.  He agreed with counsel for the plaintiffs that the basis for assessment should be “fair market rental plus management fees and government rates which is what the tenant would have had to bear.” [3]

28.  The judge divided the period of loss into two parts.  For the 1^st plaintiff the first period was November 2005 to July 2007 and for the 2^nd plaintiff it was October 2005 to July 2007.  The second period for the 1^st plaintiff was July 2007 to September 2008 and for the 2^nd plaintiff was July 2007 to October 2008.

29.  In determining the rental period he took as his starting point the completion of the assignments which were 19 August 2005 and 19 July 2005 for the 1^st and 2^nd plaintiffs respectively.  He allowed 3 months from these dates for the decoration of the flats and securing tenants for them.  That is how he arrived at start dates of November and October 2005. The end dates of September 2008 and October 2008 were when the 1^st plaintiff found a tenant and the 2^nd plaintiff moved into her flat.  The reason for the division of the period of loss into two periods, before and after July 2007, was simply because the valuers had assessed different rental amounts for these two periods.  Three valuation dates were, in fact, chosen for the purpose of valuation.  They were the date of assignment (July 2005), the date after which the first tenant moved into the development (1 April 2007) and 2 years from the date of assignment.

30.  In order to assess this head of loss he had the assistance of two expert valuers, a Mr Tang and a Miss Lo.  There was much on which they agreed but where they differed the judge preferred the evidence of Mr Tang and he explained in some detail why he did so.

31.  Under this claim he considered whether the plaintiffs could have rented out their properties sooner and this seems to have been the primary consideration in respect of question (viii) of whether the plaintiffs had reasonably mitigated their losses.  The judge accepted their evidence that much longer was needed to repair defects in the finish before decoration could start.

32.  The judge then moved on to the Facilities Claim but noted that there was no claim of damages for the failure of the defendant to provide, at the time of assignment, fully completed communal and recreational facilities.  These, he found, did not come into operation until April 2007.  But as no separate damages were claimed, he simply noted the breach which he regarded as going to support the Nuisance Claim for loss of rental.

33.  Finally, the judge discussed the Fittings Claim which he described as “a claim designed to reimburse the plaintiffs for the cost of putting the premises into the position that they should have been on assignment.  In other words the cost of repair and rectification.” [4] Underlying the judge’s assessment of this claim were a legal assumption and a factual finding.  The legal assumption was that there was an implied term in the SPA that the properties would be fit for luxurious residential purposes.  The factual finding was that the state of the fittings were “very shabby indeed.  Worse still, the windows leaked, wire mesh at the frame was visible and the finish was simply appalling.” [5]  He agreed with the characterization by the plaintiffs’ counsel of the standard of the finish as “not measuring up to what one expects of low cost housing.” [6]  This led him to conclude that “the plaintiffs were obliged to put right defects before they could begin decoration.” [7]

34.  In assessing “the fair cost of rectifying the defective works” [8] the judge was assisted by two expert surveyors, Mr Law and Mr Chan.  He found Mr Law overly generous in his assessment and Mr Chan insufficiently generous.  He thought Mr Law’s assessment was “closer to the mark than Mr Chan’s” [9] and so adopted it as his starting point and then reduced it by 20%.

35.  Adding up the two heads of claim, namely the Nuisance Claim and the Fittings Claim, the judge awarded total damages of $4,953,395 to the 1^st plaintiff and $4,967,189 to the 2^nd plaintiff.  He further ordered that the defendant pay the plaintiffs’ costs and that these be taxed on an indemnity basis.

The Grounds of Appeal

36.  In respect of the claim under the SPA the defendant complains that the judge erred in implying into the SPA a term that the plaintiffs’ units would be “fit for luxurious living”.  He further erred in finding that the defendant had failed to deliver a completed development as it had agreed to do in the SPA as the provisions of the SPA meant that construction of the development was completed upon the issue by the Lands Department of the Certificate of Compliance.

37.  In respect of the Nuisance Claim the defendant makes a number of complaints.  Firstly that the judge erred in allowing the plaintiffs to rely on a clause in the SPA imposing an obligation on the defendant to remedy defects. Secondly, the defendant says that the judge’s finding that the on‑going works “made it impossible for anybody to live at the Development for the first three years after completion of the conveyances” [10] was contrary to the evidence and the judge should have found the tort of nuisance not made out.  In support of this ground of appeal the defendant referred to particular evidence of which it says the judge did not take any or any sufficient account.  It is also said that the judge did not distinguish between the inconvenience caused by the on‑going work carried out by the defendant and that carried out by the new owners of individual units within the development.  On the basis of all the evidential matters referred to under this ground of appeal the defendant says that the judge ought to have found that the building work was reasonably carried on and reasonable and proper steps had been taken to ensure that no undue inconvenience was caused to the plaintiffs.

38.  As for the DMC the defendant says that its provisions do not add anything to the plaintiffs’ position at common law.

39.  In a Supplemental Notice of Appeal the defendant makes various complaints about the judge’s analysis of the evidence and findings made or not made.  These go to his findings that when sold to the plaintiffs the development was well short of completion, that the on-going works of the defendant were unreasonable and that these works were not improvements or upgrading works.  The defendants asserts that the judge should have found that as between the plaintiffs and the defendant the only outstanding work was the works in the defect list and that none of the work carried out after completion of the sale of the units to the plaintiffs was the subject of any agreement between them and the defendant.

40.  Complaint is also made that the judge did not identify the duration of the nuisance and that there was no evidence to support the finding that “the Development remained a busy construction site which was completely unconducive to persons living there.” [11]

41.  The defendant also complains about the judge’s assessment of damages. In respect of the Nuisance Claim it says that the judge ought to have held that damages for loss of rental income should not begin to run until after the plaintiffs had completed the decoration of their respective units.  Further, on the evidence, the judge should have held that any loss of rental suffered by the plaintiffs after April 2007 was not caused by the defendant’s alleged nuisance due to its alleged failure to provide facilities.  Alternatively, the cut-off point should be 28 February 2008 which was the date of final inspection by CBRE and by which date only minor remedial work remained outstanding. Finally, it is said that the damages ought to have been assessed on the basis of a percentage decrease in rentals up to at most February 2008.

42.  In respect of the Facilities Claim the defendant again relies upon the Certificate of Compliance to argue that the swimming pool, children’s play area and clubhouse were completed or conclusively deemed to be completed.

43.  For the Fittings Claim the defendant argued that the judge erred in finding that there is an implied term that the plaintiffs’ units would be “fit for luxurious residential purposes”.  Further, it is said that the clause in the SPA imposing an obligation on the vendor to remedy defects precludes the plaintiffs from making the Fittings Claim.

The Respondents’ Notice

44.  The plaintiffs contend by their Respondents’ Notice that the judgment should be affirmed on a number of alternative additional grounds.  The first is that the judge’s finding that the on-going works to the common areas and facilities constituted the tort of nuisance can also support a finding there was a breach of clauses 6(a) and 6(e) of the DMC.  Even if the works of the defendant did not amount to a nuisance, they would nevertheless be a breach of the DMC as the evidential standard required for such a breach is lower than for the tort of nuisance.  Thirdly, the plaintiffs rely on Andreae v Selfridge & Co Ltd [1938] 1 Ch 1 to argue that there is no immunity simply by reason of the fact that the works were renovation in nature.  Fourthly, the plaintiffs say that no defence is available that the works were carried out during daytime or within the development.  The fifth ground refers to evidence that supports the loss of rent claim.  The sixth and final ground deals with the ground of appeal that asserts there was no evidence that the loss of rental was caused by the defendant’s failure to provide facilities.  The plaintiffs claim that there was such evidence, and little to the contrary, and make the point that in its Amended Defence the defendant did not plead any positive case challenging causation.

Discussion

45.  The financial difficulties of the defendant became an important part of the context because, on the plaintiffs’ case, it explained much about why the defendant conducted itself in the way it did.

46.  As mentioned, the plaintiffs adopted a triple-barrelled approach to establishing liability and only one of the barrels needed to fire true in order for them to be successful.  As the core factual and legal issues are whether there took place post-conveyance construction works which cannot be characterised as minor upgrading or improvement works and which by their nature and scale impacted so adversely upon the quality of life at the site that they constituted a nuisance, it is to those issues that we shall turn first.

47.  The factual issues relate to questions (i), (iv) and (v) and (vi) and the legal issue to question (iii).  On these issues the defendant argues that the judge was wrong to find that they were not improvement works and was insufficiently precise in his findings as to the duration of the nuisance and to its nature.  In this respect the defendant relies on the principle derived from Andreae v Selfridge & Co Ltd [1938] 1 Ch 1 that in determining liability for nuisances it is necessary to distinguish between works reasonably carried on and works of such an abnormal and unusual nature as to constitute not a normal use of land.  It is also argued that the judge was preoccupied by the financial problems encountered by the defendant and he allowed this to impermissibly influence his approach to his determination of the issues.

48.  It was not disputed that the works took place, what was in dispute was who was responsible for them (the defendant or the Property Manager appointed under the DMC) and their character.

49.  In order to determine what work took place after conveyance and to obtain a clear picture of how extensive it was and whether it was just minor in nature or could properly be described as only improvement work it was necessary for the judge to delve into the history of the development and, of course, the financial problems of the defendant were very much a part of that history.

50.  By recourse to the documentary evidence and the testimony of Mr Li the judge was able to find that much of the post-conveyance construction work had been included in the original contract with Woon Lee.  Under that contract Woon Lee was required to complete this work prior to the OP being obtained.  But with Mr Li’s help the defendant was able to defer the completion of this work until after the OP had been obtained.

51.  Far from being irrelevant to the issues before him, the evidence of the financial difficulties of the defendant were a key contextual element which explained why construction work remained outstanding, what that construction work was and why it was so extensive.

52.  On these factual issues the judge made very clear findings and the strength of his views is apparent from both the language he employed and the fact that he awarded indemnity costs to the plaintiffs.  If those findings cannot be shown to be plainly wrong then this Court is bound by them. (See Ting Kwok Keung v Tam Dick Yuen & Ors (2002) 5 HKCFAR 336.)

53.  Underlying the defendant’s attack on the judge’s finding that the post-conveyance construction works were more than mere improvement works is an attempt by the defendant to bring itself within the principle of Andreae v Selfridge & Co Ltd [1938] 1 Ch 1.  The headnote in the first holding succinctly describes the legal principle:

“(1) that no cause of action arises in respect of operations, such as demolition and building, if they are reasonably carried on and all reasonable and proper steps are taken to ensure that no undue inconvenience is caused to neighbours.”

54.  In this case Sir Wilfrid Greene MR was at pains to emphasise that it was not enough to show that the defendant carried out building work as a result of which the plaintiff suffered injury or loss; the question was whether, by its operations the defendant had crossed a permissible line in its use of the land.  No issue is taken with the correctness of this principle but, of course, what is the permissible line is a fact sensitive issue that will vary from case to case.

55.  Counsel for the defendant referred the Court to the following passage from Clerk & Lindsell on Torts, 20^th edition, at page 1278, paragraph 20 – 10:

“The acts complained of as constituting the nuisance, such as noise, smells or vibration, will usually be lawful acts which only become wrongful from the circumstances under which they are performed, such as the time, place, extent or the manner of performance … the courts in deciding whether an interference can amount to an actionable nuisance have to strike a balance between the right of the defendant to use his property for his own lawful enjoyment and the right of the claimant to the undisturbed enjoyment of his property. No precise or universal formula is possible, but a useful test is what is reasonable according to ordinary usages of mankind living in a particular society.

56.  This passage emphasizes that in any society where persons are living in close proximity to each other neighbours must exercise a certain amount of give and take in the use of their properties.  An example of its application to which we were referred by counsel for the defendant is Capital Prosperous Ltd & Anor v Sheen Cho Kwong [1999] 1 HKLRD 633.  Reliance on this line of case authority was also part of the defendant’s claim that the works at the development were just owners carrying out renovations to their flats – conduct in which they were entitled to engage and which it has not been proven went beyond permissible limits.  But, that portrays a factual scenario that is contrary to what the judge found to be the case.  The judge, by reference to Woon Lee’s contract documents, concluded that the construction work was deferred work that was originally intended to be completed before issue of the OP.  It is implicit in such a finding that the substantial works at the development on which the judge ultimately concluded made the defendant liable in nuisance were not simply renovation works being carried out by the new owners.

57.  That is not to say that there may not have been renovation work by new owners or that such renovation works as there were did not contribute to the development being a building site.  But, it is clear from the judge’s findings that the bulk of the construction work which was of concern to him and which is depicted in the photographs are uncompleted aspects of the development and not merely the internal finish of individual flats.

58.  In respect of this defendant part of the factual context is that, because of funding difficulties, the defendant put off doing construction work which should have been completed before the OP was issued.  Had the defendant not needed the plaintiffs’ monies in order to carry on with the development the plaintiffs would have faced a properly completed development rather than the noisy, dusty building site which confronted them.

59.  In our view it is quite apparent that in resolving the factual issues in this case the judge considered the use that the defendant made of the land and whether, in the circumstances of this case, that use crossed the line of what was permissible.  At paragraph 14 he said:

“To say that the plaintiffs and other purchasers bought into a building site is no exaggeration. As I stand back from the evidence and, although it is usually not helpful to employ extreme language, it is abundantly clear that these purchasers were plunged into a nightmare out of which they did not emerge for at least three years and this, after they had paid over $46 million each for their units.”

And at paragraph 17:

“What these unfortunate purchasers bought into was a development well short of completion. In fact about three years short of completion during which time substantial, noisy, dusty and expensive building work was being carried out. Far from being “upgrading” or “improvement” works these were necessary outstanding works and rectification of defective works all of which was the result of this developer taking on obligations for which it was ill-equipped.”

60.  The judge, at paragraphs 34-43 of his judgment, made findings of fact as to the nature of the work carried out by the defendant.  These paragraphs reveal very substantial works that were being carried out post‑conveyance and include such fundamental matters as resurfacing of the access road in 2007 as the dangerously slippery surface applied in 2005 had led to an accident between two vehicles.

61.  In paragraph 44 of his judgment he described the impact of the building work on the development.  They included:

(i) the presence of building materials, construction debris and dirt all over the Development;

(ii) the erection of scaffolding on all the blocks and the house;

(iii) closure of the main access road from time to time;

(iv) improper placement of construction tools and machinery; and

(v) very loud noise and vibrations being caused by the works and workers.

62.  In making the findings of fact which underlay his conclusion on liability he had regard to not just the evidence of the plaintiffs and the photographs they had taken of the development but also the expert report of Mr James Law, a Registered Professional Surveyor employed by C B Richard Ellis Limited (“CBRE”).  Mr Law and his colleagues first inspected the property on 11 and 19 October 2006 and they took many photographs of the development.  These photographs, from an independent expert, demonstrate very clearly all the problems referred to by the judge and just how much a building site this development remained and, as a consequence, how hazardous it was to any occupants of it.  He concluded, from all the matters he identified in his report, that the Development was unfit for occupation.

63.  Re-inspection by employees of CBRE was carried out on 26 January 2007 and 18 February 2008.  Photographs show that on 26 January 2007 the situation had not markedly changed but by 18 February 2008 most of the site was clear of construction work and debris.  CBRE concluded that as at 26 January 2007 the flats were unfit for habitation but that as at 18 February 2008 “The Development appeared to have been changed from its construction site environment to the habitable condition”.

64.  These reports and accompanying photographs reveal quite graphically the extent to which the development was a construction site.  It is not surprising that the judge made the findings of fact that he did and that he described the plaintiffs’ case as an overwhelming one.

65.  But as strong as the evidence was, the judge made it clear that he had to be satisfied that on those facts the defendant was liable in nuisance.  This much is apparent from paragraph 50 of his judgment.  There he says that the issue he has to decide is not whether, by virtue of these facts that he found proven, there was nuisance suffered but whether the works, as found by him “amounted to an actionable nuisance”. (Emphasis added)

66.  Finally, at paragraph 70, when dealing with his determination of liability he said:

“The sheer weight of unfinished works, together with amendments such as putting up curtain walls to the Ground and 1^st Floor duplexes and to what was done to House B made it impossible for anybody to live at the development for the first three years after completion of the conveyances. This was a full‑scale construction site. The defendant’s building of this Development, with so much left undone by the time of the conveyances to these plaintiffs, was completely out of order.

67.  We are in no doubt that it is clear from the judge’s finding and his conclusion on liability that he considered whether the defendant’s use of the land had crossed the permissible line.  Furthermore, we are in no doubt that on the basis of the findings of fact that he made, the judge was entitled, as he did, to conclude that it had crossed the permissible line.  The plaintiffs’ claims based on the tort of nuisance were made out.

68.  As we have found the plaintiffs’ claim proven in nuisance, it is not necessary for us to address the other claims under the SPA and the DMC and the defendant’s grounds of appeal in respect of them.  However, there is one exception to this and that is the Fittings Claim which is based upon a construction of the SPA.  This claim we shall turn to shortly.

Damages

69.  In respect of the assessment of the damages complaint is made of the period of time over which the judge calculated the loss and the method he employed in doing so.

70.  The judge allowed 3 months for the plaintiffs to complete their decoration and find a tenant.  The defendant argues that such a short period of time is unjustifiably generous as it is clear that, in fact, the plaintiffs took until March 2006 (the 1^st plaintiff) and April 2006 (the 2^nd plaintiff) to complete their renovations.  Furthermore, one should not assume that a tenant would be immediately found and so time should be allowed for the process of finding a tenant for each flat.

71.  We agree, for the reasons advanced by the defendant, that the judge was unreasonably generous in adopting start times of November and October 2005 for the purpose of calculation of damages.  However, we do not agree that a start time should be some time later than the date the plaintiffs actually completed their renovations.  It must be remembered that the reason that the plaintiffs took so long to renovate their flats was partly because there was so much to do to bring them up to an appropriate standard after the defendant had handed them over in such a poor condition.  We are of the viewthat an appropriate time from which to assess the damages is 1 March 2006.

72.  Dispute is also taken by the defendant with the end date for the calculation of damages.  The defendant argues that this case was fought by the parties on the basis that after 28 February 2008 there was no construction work on-going at the development.  The plaintiffs’ closing submission contains this concession in respect of what was referred to as “Period C”, namely March to September/October 2008:

“It is accepted that there is no evidence in this period of 7 months showing that the Development was still subject to any construction works.” [12]

73.  The judge does not explain why he allowed damages for “Period C” and we are of the viewthat they cannot be justified.  We would end the damages period at 28 February 2008.

74.  The defendant also argues that the method adopted by the judge to calculate damages was wrong.  The defendant referred to the comments by Lord Hoffmann in Hunter v Canary Wharf Ltd [1997] AC 655 at 706 B-F:

“In the case of nuisances “productive of sensible personal discomfort,” the action is not for causing discomfort to the person but, as in the case of the first category, for causing injury to the land. True it is that the land has not suffered “sensible” injury, but its utility has been diminished by the existence of the nuisance. It is for an unlawful threat to the utility of his land that the possessor or occupier is entitled to an injunction and it is for the diminution in such utility that he is entitled to compensation. …

But diminution in capital value is not the only measure of loss. …

In the case of a transitory nuisance, the capital value of the property will seldom be reduced.  But the owner or occupier is entitled to compensation for the diminution in the amenity value of the property during the period for which the nuisance persisted.  To some extent this involves placing a value upon intangibles.  But estates agents do this all the time.  The law of damages is sufficiently flexible to be able to do justice in such a case.”

75.  The defendant argues that here there was never any suggestion that the capital value of the flats suffered and that what the judge should have done was to assess the diminution in the amenity value of the property during the currency of the nuisance.  This the defendant argues should have been assessed at no more than a 20% decrease in rentals and not on a total loss basis.

76.  We do not disagree with the legal principle expounded by Lord Hoffmann in the Canary Wharf case but we do not take it to exclude the possibility of a total loss of amenity value.  Nor does Lord Hoffmann discuss how the impact of the nuisance on the amenity value is to be measured.  We regard this as a question of evidence and one need only turn to the judge’s findings of facts for an answer.  It is not to the point that the expert valuer assesses a decrease in rental value of 20%.  In our view the issue is whether, after reasonable efforts by the plaintiffs, the flats were successfully tenanted.  If they were not then the loss of amenity value to an owner of the flat who purchased it in order to lease it out is the total loss of rental income until the time it is tenanted.

77.  We therefore agree with the defendant that the judge erred in his determination of the damages period.  The appropriate period, for both plaintiffs is 1 March 2006 to 28 February 2008.  In line with the valuation report as applied by the judge there should be two periods for assessment of loss of rental income; the first period is 1 March 2006 to 30 June 2007 and the second period is 1 July 2007 to 28 February 2008.  However, we agree with the method adopted by the judge in calculating the damages.  Applying that method for each plaintiff the damages are calculated as follows:

1 March 2006 to 30 June 2007	:	Loss of rent of $113,000 plus $12,697 management fees and rates which amounts to $125,697 per month for 16 months which equals $2,011,152.
1 July 2007 to 28 February 2008	:	Loss of rent of $139,000 plus $12,697 management fee and rates which amounts to $151,697 per month for 8 months which equals $1,213,576.

When these amounts are combined the total damages for each plaintiff under the Nuisance Claim is $3,224,728.

The Fittings Claim

78.  As we have said at paragraph 33 of this judgment this claim is essentially based upon the judge’s conclusion that a term should be implied into the SPA that the flats would be fit for luxurious residential purposes. His findings of fact have been set out at paragraph 33 and need not be repeated here.

79.  Accepting his findings of fact the question remains of whether there was a legal basis for this claim.  This requires that the judge’s legal conclusion, that a term should be implied into the SPA, be addressed.  Mr Yu SC, for the defendant, argues that the SPA clearly, and completely, sets out the entitlements of the parties and that there is simply no necessity for implying any additional term into it.  Furthermore, he says that a term such as “fit for luxurious residential purposes” is too vague of meaning to be capable of clear and precise definition.  The term begs the question of by whose standard is the quality of “luxurious” to be judged.  Clearly what one person regards as luxurious another may regard as ordinary.  People of different socio-economic backgrounds will have different standards of what is luxurious.  We see much force in this argument.

80.  But, putting this aspect of the argument to one side for the moment, was there actually any need for a term of this type to be implied into the SPA? The starting point to a consideration of this question is to firstly see what is in the contract.  The fittings and finishes warranted by the vendor, under clause 10(c) of the SPA, are those specified in Schedule 5 of the SPA. Schedule 5 is very sparse and it is quite apparent from it that the vendor is selling a bare shell flat with minimal fittings.  In fact, the only fittings are lights, air-conditioners and a hot water system.

81.  In the context of a sale of a bare shell flat where, by agreement of the parties, little is very deliberately being provided by the vendor and what is being provided is specified item by item in a schedule, is there any basis for implying any further term covering fittings and finish?

82.  The applicable legal principles on this issue are derived from a passage in the judgment of Lord Simon of Glaisdale in the Privy Council decision of B P Refinery Pty Ltd v Hastings  Shire Council (1978) 52 ALJR 20 at 26:

“… for a term to be implied, the following conditions (which may overlap) must be satisfied: (1) it must be reasonable and equitable; (2) it must be necessary to give business efficacy to the contract, so that no term will be implied if the contract is effective without it; (3) it must be so obvious that “it goes without saying”; (4) it must be capable of clear expression; (5) it must not contradict any express term of the contract.”

83.  This passage was endorsed and applied by the Court of Final Appeal in Kensland Realty Ltd v Whale View Investment Ltd & Anor (2001) 4 HKCFAR 381 at 401 G-I.

84.  Applying the pre-conditions to the facts of this case it is apparent to us that the implied term does not satisfy conditions (2) and (4).  The contract does contain express terms regulating this issue and those terms purport to be complete in themselves.  They are capable of operating on their own without the need to rely on any other term for their efficacy.  It simply cannot be said that within the framework and content of this SPA the implied term is necessary.  Furthermore, for the reasons already given, we are of the view that the implied term lacks the requisite clarity of expression to satisfy condition (4).

85.  For these reasons we conclude that there is no justification for implying this term into the SPA.

86.  But, that conclusion does not dispose of the Fittings Claim completely for, as the judge said, this claim aims to put the purchasers in the position they should have been at the date of assignment if the flats had been handed over to them in the condition stipulated by the SPA.  So, the claim now becomes one for repairs and rectification work in order to ensure that the flats conformed to Schedule 5 of the SPA.

87.  In identifying what defects (in terms of what was in non‑conformity with schedule 5 of the SPA) existed in respect of the two flats, both parties relied on a report by Mr Law of CBRE which contained a schedule listing out all of the defects claimed by each of the plaintiffs and adding his own commentary on them.  Adding up the various amounts listed out by Mr Law in his schedule the total cost of remedying the defects amounts to $44,100 for flat 6B (the 1^st plaintiff) and $42,000 for flat 6A (the 2^nd plaintiff).

88.  These amounts should be discounted by 20% to $35,280 and $33,600 respectively to allow for the amount by which the judge taxed off Mr Law’s assessment.  Those are the amounts that we allow as damages under the Fittings Claim.

Costs

89.  The defendant was unsuccessful in its appeal against liability but partly successful in its appeal against quantum.  It has managed to reduce the total damages by a significant amount.  On the other hand, the bulk of the appeal, in terms of issues argued, written materials produced and considered and time spent in the appeal, was on matters related to liability, on which the defendant was entirely unsuccessful.  We think the reality of the situation is that the event, which costs of the appeal should follow, is the decision on the issue of liability but that the costs order should reflect the defendant’s success on the quantum aspects.  Accordingly, we consider that some but not all of the costs of the appeal should be awarded to the plaintiffs and, to reflect the lesser time spent on quantum but the defendant’s success on that issue, we would award the plaintiffs only half of their taxed costs of the appeal.

90.  The judge awarded indemnity costs for the costs of the trial.  This was an exercise of discretion by him which he explained in reasons set out in his trial and costs judgments.  As presently advised we cannot see any reason to interfere with his order in respect of the costs of trial.

Conclusion

91.  We therefore dismiss the appeal as regards liability for nuisance but allow the appeal as regards quantum.  Likewise, in respect of the Fittings Claim insofar as it relies on a breach of Schedule 5 of the SPA. We substitute for the total damages assessed by the judge amounts of $3,260,008 for the 1^st plaintiff and $3,258,328 for the 2^nd plaintiff.  We leave the judge’s orders in respect of interest unaltered.  We make an order nisi that the costs of trial remain unaltered and an order nisi that the plaintiffs be awarded half of their costs of appeal, to be taxed if not agreed, with a certificate for two counsel.