XCHRX Yau Wai and Ho Wing Shan and Others v. Mark Honour Ltd.

HCA9627/2000

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO.9627 OF 2000

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J U D G M E N T

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Reasons

1. The plaintiffs apply for summary judgment under Order 86 of the Rules of the High Court. In addition, they apply under Order 14A for determination of two questions of law or construction.

2. The plaintiffs are 15 purchasers who agreed to purchase from the defendant apartments in a development at Aberdeen called Bayshore Apartments. They all entered into the agreements for sale and purchase between February and July 1998. Most of the agreements were made in March of that year.

3. Under the agreements, the development was to be completed on or before 31 May 2000 subject to such extension of time as may be granted to the vendor by an authorised person. There were various possible reasons for extension, but the only one which concerns us here is inclement weather, as defined in the agreements. If the development was not completed by the due date, including any extensions of time, the purchasers could rescind the agreements and get their money back with interest. Time was of the essence in the agreements.

4. The authorised person, Mr Ronald Liang, architect of LWK and Partners (HK) Ltd, issued five Certificates of Extension which brought the completion date up to 27 August 2000. There is no dispute as to the validity of these certificates. The development was still not completed by that date.

5. By letters dated 29 and 31 August, the plaintiffs rescinded the agreements. They had all paid in full except for the 11th plaintiff. They demanded their money back but they did not get it and therefore they have sued.

6. After the date of rescission, the authorised person, on 11 September 2000, issued a further Certificate of Extension purporting to extend the time for a further 75 days after 12 August 2000. This was issued retrospectively. While all the previous certificates stated in terms that the reason for the extension was inclement weather, the Sixth Certificate did not state any reason for the extension.

7. Originally, the plaintiffs applied for summary judgment under Order 86. The defendant filed affirmations, raising a defence based on allegations that the plaintiffs had caused disruption of work on the development. The plaintiff then applied under Order 14A for a determination of the following questions of law or construction, namely :

"(i) whether on a true and proper interpretation of each of the agreements for sale and purchase......the letter dated 11th September 2000 from Mr. Ronald Liang......was effective for the purpose of clause 4(5)(a) of each of the 15 agreements.....; and

(ii) in particular, whether any extension of time to be granted under clause 4(5)(a).....in order to be valid can only be granted before the time for completion (as extended by all previous extensions validly granted) expired?"

8. In brief, the plaintiffs' case is that they were entitled to rescind the agreements because the development was not completed by 27 August 2000, which was the due date, as extended by the five valid Certificates of Extension. The Sixth Certificate of Extension is ineffective to extend the date of completion, because it was not issued in respect of inclement weather and because it was issued after the expiry of the earlier extensions.

9. The defendant's case, as it appears from affidavit evidence, is that even prior to the unextended completion date of 31 May 2000, the plaintiffs or some of them had started a campaign of disruption of the works. This was done by concerted action to lodge complaints with various government departments concerned with the development, the ICAC and others, including the authorised person and the Hong Kong Institute of Architects. As a result of this campaign, inquiries were made by various government departments. Many more building site inspections than normal were carried out, in particular by the Buildings Department, and this caused delay to the works. It was for this reason that the development could not be completed by 27 August 2000. The plaintiffs caused the delays, which in turn caused the failure to complete the development, and they cannot rely on their own wrongdoing.

10. The plaintiffs say that I should first make the determination under Order 14A. Once this is done, then assuming the determination is in the plaintiffs' favour, the sketchy nature of the defence will be seen. The defendant cannot satisfy the court that there is an issue or question in dispute which ought to be tried, or that there ought for some other reason to be a trial of the action, but if there is a some kind of defence, it is sketchy, and at best the defendant should have conditional leave to defend.

11. The defendant says that the question of disruption by the plaintiffs is a triable issue, and it should therefore have unconditional leave to defend. It does not dispute that I have jurisdiction to make the Order 14A determination, but argues that I should in my discretion refuse to do so. Investigations are ongoing and the defendant may be able to set up some kind of estoppel defence. If the defendant can establish such a defence or any defence based on disruption, any question of the validity or otherwise of the Sixth Certificate of Extension will be academic. The whole case should therefore be left to the trial judge.

The Determination

12. As I have indicated, it is not in dispute that I have the jurisdiction to make the determination. Although it will not, to use the language of Order 14A, rule 1(b) "finally determine (subject to any possible appeal) the entire cause or matter", the parties agree that it will determine a "claim or issue therein".

13. Leaving aside for the moment the question whether Order 86 should be applied, I am not persuaded that I should in any event not make the Order 14A determination sought. As Mr Chain, for the plaintiff, points out, if I determine the issue of construction of the agreements against the plaintiffs, that means that the rescissions were wrongful and it is the end of the plaintiffs' case. If however I determine the issue in favour of the plaintiffs, while this does not necessarily stifle any other defence, it will only become academic if such defence succeeds. Further, while it will not determine the entire cause or matter a determination in the plaintiff's favour will clear the decks because it will mean that if leave is given to defend, one issue at least will be out of the way. Lastly, it may affect the decision on whether any such leave to defend should be conditional.

14. All the sale and purchase agreements are in the same form. Clause 4 provides:

"(1) The Vendor shall:-

(c) complete the Development in all respects in accordance with the building plans on or before the 31st day of May 2000 subject to such extensions of time as may be granted by the Authorised Person in accordance with sub-clause (5)(a).

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(5) (a) The Vendor shall be entitled to such extensions of time for completion of the Development beyond the date stated in sub-clause (1) (c) is as shall be granted by the Authorised Person and appeared to him to be reasonable having regard to delays caused exclusively by anyone or more of the following reasons: -

(i) Strike or lock-out of workmen;

(ii) Riots or civil commotion;

(iii) Force majeure or Act of God;

(iv) Fire or other accident beyond the Vendor's control;

(v) War; or

(vi) inclement weather and for the purpose of this Agreement inclement weather means rainfall in excess of 20 mm in a 24 hour period (midnight to midnight) as recorded at the Royal Observatory, the Rainstorm Black Warning is issued or the hoisting of Typhoon Signal Number 8 or above at any time between the hours of 8 and 5 p.m.

(b) The Vendor shall notify the purchaser in writing within 14 days from the issue of any such extensions of time granted by the Authorized Person and furnish the Purchaser with a copy of the relevant Certificate of Extension."

15. As I have indicated, the five Certificates of Extension which extended the completion date to 27 August all referred in terms to inclement weather and to its contractual definition. The Sixth, i.e. the letter dated 11 September 2000, gives no reason for extension. It merely refers to 36 itemised applications submitted, and goes on to note that the extension is granted "in addition to the inclement weather extension granted previously". None of those applications was made in respect of inclement weather as such although most refer to work done to remedy the effects of inclement weather. Interestingly enough, of the 36 applications, 24 were in respect of dates before 2 May 2000, the date of issue of the First Certificate.

16. There is nothing on the face of the Sixth Certificate of Extension to show that the extension appeared to the authorised person to be reasonable, having regard to delays caused exclusively by any one or more of the reasons set out in the sub-clause. It is rather difficult to see how a large part of the extension could in any event have appeared reasonable to him, relating back as it did to a period before earlier claims were made.

17. The vendor was under a contractual duty to notify the purchasers of the extension and supply a copy of the certificate. It could not be said therefore that a valid certificate could be issued without showing reasons.

18. It is also argued that the certificate is not effective because it was issued after the date of completion as extended by the earlier certificates. The plaintiffs rely on Tsang Cheung Kit v. Hong Kong Housing Authority [1982] HKC 268, in which a purchaser was not allowed to rely on an architect's certificate granted 20 months after the date of completion. The certificate was held to be invalid. They also rely on some comments by Lord Hoffman NPJ in Global Time Investments Ltd v. Super Keen Investments Ltd [2000] 4 HKC 419 relating to the need for parties to be certain of their position, particularly in a falling market.

19. In Tsang Cheung Kit, it was held that a decision as to extension of time had to be made before the contract completion date had passed if the parties were to be certain about their rights under the relevant clause of the terms and conditions of their contract, which gave the purchaser the right to rescind the agreement within seven days of the completion date as legitimately extended. As Fuad J (as he then was) put it:

"I agree with Mr Neoh that however unlikely it was that the purchasers of these nice flats, priced well below their market value, would wish to take advantage of this clause, it would be robbed of all its effect if the contentions put forward on behalf of the Housing Authority were to be accepted. In these circumstances, and as a matter of construction, a decision as to extension of time had to be made before the contract completion date had passed if the parties were to be certain about their rights under cl 4. I do not see how the parties, had they thought about it, could have contemplated a delay of as long as 20 months between the original time for completion and the granting of the certificate."

20. Here, of course, the certificate was only about two weeks out of time, but it seems to me that the principle is the same. We are not dealing with "nice flats priced well below their market value." We are dealing with a volatile market in which, as it turned out, the flats were and are worth less than the purchasers paid for them. The parties would not necessarily have known at the time of the contract that the market would drop, but they must have known of its volatility. The purchasers needed to know where they stood. So did the vendor. It seems to me that the parties could not have been taken as intending that retrospective certificates would be valid.

21. I conclude, therefore, for both these reasons that the letter dated 11 September 2000 from Mr Ronald Liang was not effective for the purpose of clause 4(5)(a) of each of the fifteen agreements.

The Order 86 application

22. Under Order 86, the defendant must satisfy the court that there is an issue or question in dispute which ought to be tried, or that there ought for some other reason to be a trial of the action.

23. The defendant's case is, as I have said, that the plaintiffs caused disruption of work on the development which in turn caused the delay. From the affirmations, it appears that from the end of February 2000, many complaints were made to various government departments which caused these departments to carry out numerous checks and inspections of the construction site. This in turn prevented the defendant from meeting the original scheduled completion date set out in the agreements.

24. In the affirmation of Mr Francis Ho Ying Yiu, the director of the defendant's building sub-contractor, there appear tables showing the departments concerned, and the number of days' work lost between March and October 2000 because of these complaints. The time was lost, or much of it was, in carrying out work required by the relevant departments after their inspections. In any event, there is evidence that the number of inspections was greatly in excess of those normally carried out in the course of a construction project.

25. Included in the complaints were complaints to the police, the ICAC and the Hong Kong Institute of Architects, the latter complaining about the issue of the Certificates of Extension.

26. There is also evidence to suggest that some of the plaintiffs at least were involved in a concerted plan to put forward these complaints. Mr Lee, the 10th plaintiff, says that he and others did make complaints in April but denies that they were groundless; according to him, the work did not appear to be anywhere near completion and they wanted it completed, and completed properly without being rushed through at the last minute. It appears that Mr So, the 5th plaintiff, advertised in a local newspaper in May 2000 that an owners' union would seek to rescind the contracts and solicited support for this. It also appears that Mr Yau, the 1st plaintiff, was involved in complaints to the police. Then on 31 May 2000, an unnamed group of owners wrote a letter to nine government departments or organisations, expressing their concerns that the developer might jerry-build the flats to finish them, and might try to deceive the department concerned into issuing the occupation permit. The letter asked the departments to implement strictly the inspection and approval of the flats.

27. Various other factual matters are put forward to suggest that a campaign was carried on to get the various government departments to supervise the developer closely. The ostensible reason for this was to make the developer finish the development quickly and properly, though it appears that some suggestions of rescission were made.

28. The defendant has also produced evidence of a considerable drop in the value of the properties, of the order of 50% to 56% since the date of the contracts.

29. The defendant says that a party cannot take advantage of his own wrong. The enforcement of legal rights could be restrained, in equity, if there is unconscionable conduct. The plaintiffs must come to equity with clean hands.

30. The plaintiffs accept that a party cannot take advantage of his own wrong, but say that the defendants must show a criminal or civil wrong, or an act which is contrary to an express or implied term of the contract : Mona Oil Equipment v. Rhodesia Railways [1949] 2 All ER 1014. The defendant does not, it appears, dispute this. The plaintiff says that with the possible exception of wasting police time in the case of Mr Yau, no one has done anything criminal. Complaining to government departments is not a civil wrong and there could not be any implied term in the contracts that the purchasers would not complain, or carry out other acts such as hanging about the site and taking photographs.

31. The plaintiffs argue that at least the defendants would have to show that the complaints were made to third parties and that they were false, and that the complaints caused the completion date to be delayed. Further, in order to use this defence against any single one of the plaintiffs (I say single for simplicity though some were couples), it would have to be shown that he himself was involved with the making of false complaints.

32. The plaintiffs further argue that whatever the drop in value, and even if the plaintiffs' motive was to be able to get out of their contracts because of it, that is irrelevant.

33. It seems to me that the defendants will have considerable difficulty in defending this case. Even if they can show that all the plaintiffs together ganged up on them in order to delay the works, they will have to show that the defendants are guilty of some criminal or civil wrong. It is said that discovery may show that the complaints made were false. No doubt that is possible but the fact that the government inspectors required works to be done, rather than simply making a nuisance of themselves but then going away suggests that at least those complaints which resulted in these requirements could not have been false.

34. Then the defendants will have to show causation. Their case seems to be that the developer, or its builder (the companies are all inter-related), could not do its job because following the abnormally large number of inspections, it was required to comply with the inspectors' requirements; i.e. comply with the relevant building and other regulations. Put simply the defence is going to be "We could not do our job because the plaintiffs made us comply with the law". This suggests that in the normal case the builder, subjected to the usual relatively low number of inspections, does not need to comply, and does not comply, with the law. If factual causation can be shown, one wonders how the defendant can rely on it. There is also the question of whether making someone comply with the law can amount to unconscionable conduct.

35. The last point is of course that only three of the plaintiffs have been identified so far as having anything to do with the complaints though perhaps investigations and discovery may throw more light on this.

36. If the plaintiffs did take concerted action to make the government oversee the development more closely than it would otherwise have done, their motives may be relevant if the complaints were false. No one can be faulted for trying to make sure that the property for which he has paid in advance will be properly built and finished. However, a campaign of false complaints made to facilitate rescission would be a different matter and might be seen as unconscionable.

37. Mr Chan, SC, has referred to a plethora of cases in which the courts have held and reiterated that Order 86 and Order 14 proceedings are only for clear and obvious cases, ranging from the famous "moonshine" dictum in Codd v. Delap [1905] 92 LT 510, cited with approval by Godfrey JA in Man Earn Ltd v. Wing Ting Fong [1996] 1 HKC 225 to Chow Yim Woo v. Lam Yung Ming [2000] 3 HKLRD 373. He has also referred to the various dicta against a "trial on affidavits" from Wenlock v. Moloney [1965] 1 WLR 1238 onwards. I need not go through the cases. The principles are well known.

38. Mr Chan also argues that even if a defendant cannot point to a specific issue which ought to be tried, he could obtain leave to defend if there are circumstances which ought to be investigated. He relies on Miles v. Bull [1969] 1 QB 25, applied with approval in Talent Wise Ltd v. Chung Shui Ching [1998] 2 HKLRD 744. This last was a case in which the defendant had made allegations of fraud. They were not, it seems, pursued and there was no specific issue to be tried, but it was held that there were circumstances which ought to be investigated. Here, it is argued that even if there is no specific issue to be tried, there is still the possibility that the complaints were false and this ought to be investigated.

39. I cannot, obviously, hold a trial on the affidavits. I do not think this is a case where there is no specific issue to be tried, but there are circumstances which ought to be investigated. I cannot say that the disruption issue is not an issue which should be tried though it seems to me that at best, if there is a defence at all, it is sketchy, and might never be substantiated against all of the plaintiffs, if any of them.

40. On the basis that the defence is sketchy at best, Mr Chain argues that only conditional leave to defend should be given. The condition should be the payment into court of the difference between the contract price and the market price. I accept this, subject to the requirement that I may not impose a condition that the defendant cannot meet.

41. The defendant's own figures suggest a difference of at least 50% between the contract price and the market price. The plaintiffs' total claim for repayment of purchase monies comes to $53,121,975. This does not take into account the interest claims. Rather than going through a set of calculations in respect of each claim, I propose to take a global figure of 50% of $53,000,000 i.e. $26,500,000.

42. I propose to make an order that the defendant have leave to defend conditional on payment into court of $26,500,000. It will be necessary to hear from the defendant if there is any good reason why that condition cannot be met and also to give further directions.