PERFECT MANNER LTD. v. BERMUDA FAR EAST PROPERTIES LTD.

HCA 2742/1998

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 2742 OF 1998

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J U D G M E N T

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1. This is an action begun by writ in which the Plaintiff seeks various declaratory reliefs and other types of relief stemming from the falling through of an agreement for the sale and purchase of a property.

2. The property in question is a townhouse on the Peak. The original layout of this townhouse, as per the plans approved by the Building Authority, is as per a photograph which has been included in the bundle at p. 206. Basically, it shows that there is an area (referred to as a "utility area") which is between the kitchen and the maid's room. This utility area, according to the plans approved by the Building Authority and according to the assignment plan, should be open to the sky and not enclosed.

3. However, at the inspection made by a director of the Plaintiff before the provisional sale and purchase agreement was signed, this utility area had been roofed over, and a wall with windows had been built adjacent to the flower beds, so that the utility area became, in effect, a room and it was being used as a laundry room with a washing machine and dryer. The area of the room was about 9 square metres.

4. There is before me a witness statement of Mr Lau Chu, the director of the Plaintiff who had undertaken the inspection. Mr Lau's witness statement says that he had previously been living in a town house in Kowloon Tong and in a flat, and that in mid 1997, he was interested in acquiring the captioned property. Mr Lau says that he was impressed by the property and also that he liked its layout which was practical and suitable for his use.

5. He says that amongst the things that he liked about the property was the utility room that linked the maid's room with the kitchen. He says that it was very nicely formed and was very spacious as a laundry room, being well-equipped with cabinets and other fittings for holding various laundry items. He says in his witness statement that the room provided a good covered area for laundry, similar to the house in Kowloon Tong where he was living at the time. He says that he was of the view that it was inconvenient and troublesome not to have a properly covered laundry area and it was "a must" to him that there should be a properly covered laundry area which was indispensable for the proper enjoyment of a town house of this class of property.

6. After viewing the property, a provisional sale and purchase agreement was entered into. The date of the formal sale and purchase agreement was 19 May 1997; the completion date was 15 January 1998.

7. There has been an order that Mr Lau's witness statement, amongst other witness statements, stands as evidence-in-chief; no application has been made before me today that he be cross-examined and therefore, I accept Mr Lau's evidence as disclosed in his witness statement.

8. About a week prior to the scheduled completion date, an inspection of the property was undertaken by professional surveyors instructed by Mr Lau. The survey by David C Li Surveyors Ltd, showed that there were various aspects of the property which were different from the assignment plans. There were a total of six items in all, but the first item was the utility area which I have referred to.

9. In his report, the surveyor said that he suspected that the utility area was a significant unauthorized building works. However, that should be further confirmed with reference to the latest approved building plans, although at that stage, such approved building plans were not available. This led to correspondence between the solicitors for the Plaintiff (Purchaser) and the solicitors for the Defendant (Vendor).

10. The Plaintiff's solicitors wrote on 8 January 1998 that when the premises were checked against the assignment plans annexed to the first assignment, it was found that "whilst a roof slab which appeared to be of solid construction, possibly reinforced concrete, had been constructed over the utility area on the Ground Floor of the premises, the roof was shown to be uncovered on the assignment plans, and secondly, that a solid wall, possibly reinforced concrete or brick wall, with windows and door openings which were not shown on the assignment plans had been constructed between the utility area and the courtyard to form an enclosed area". The Plaintiff's solicitors consequently asked the Defendant's solicitors to provide evidence to prove that the enclosure of the utility room had been duly approved by the Building Authority and/or other relevant Government departments.

11. The Vendor's solicitors' response was to say that they "did not admit" that the approval by the Building Authority was necessary. This was followed by another letter from the Defendant's solicitors which said that they were "not suggesting that the roof slab and the wall were illegal structures". They said that their view was that "the structures were such that the Building Authority would not have disapproved of if notified or informed".

12. However, what they then carried on to do was to cause the structure to be demolished immediately prior to the scheduled completion date, and on the day before the scheduled completion date, authorized persons instructed by the Defendant certified that the layout of the property tallied with the assignment plan which was attached thereto.

13. The Purchaser's solicitors did not consider those to be satisfactory answers to the requisitions. The Plaintiff did not accept that the property with the open utility area would be substantial compliance or substantial performance of the agreement which he had entered into, and therefore the contract was put an end to and these proceedings were begun.

14. As to whether the enclosure and the covering of the utility area was contrary to the Buildings Ordinance or otherwise, there is now a report by Mr Lai Hoi Leung, who is an Authorized Person, who says that he has inspected the approved site plans, plot ratio calculation drawing and site coverage drawings. He has referred to the Building Planning Regulations 19, 20 and 21 and he says that it is clear that, according to the Buildings Ordinance and Regulations, the enclosure of the utility area was an illegal structure, the erection of which had not been authorized under the relevant statutory provisions.

15. There is no contrary evidence before me from any Authorized Persons. Mr Edward Chan SC, who appears for the Defendant, has conceded as a primary fact that the Defendant was at all times aware that there was no approval from the Building Authority for the covering and the enclosure of the utility area.

16. In the circumstances set out above, I am prepared to make a declaratory order in terms sought by the Plaintiff. If the requisitions were late, the delay in raising them had clearly been waived by the Defendant's provision of purported answers to the requisitions.

17. As far as the purported answers were concerned, the answer was not that "this structure was not approved, but nevertheless, the Vendor could give good title", even though it was clear that the property had always been in the possession of this Defendant and even though, as I have said, there is now a concession as to a primary fact that the Defendant was aware that no approval from the Building Authority for the enclosure of the utility area had been obtained.

18. Given these two significant facts namely, (1) that the Defendant had always been in possession of this property and (2) that the Defendant was aware that no approval from the Building Authority had been obtained for the enclosure of this utility area, I take the view that there has been a sufficient lack of candour on the part of the Defendant's solicitors to amount to a failure to answer the Plaintiff's requisitions, see Active Keen Industries v. Fok Chi Keung [1994] 1 HKLR 396.

19. As far as the Defendant's demolition of the offending structure was concerned, I am satisfied that on the basis of Mr Lau's witness statement, which is now evidence-in-chief, that as a result of the demolition of that covered utility area, he would not be getting substantial performance of the property that he had agreed to purchase. See Goldful Way Development Ltd v Wellstable Development Ltd [1998] 4 HKC 679.

20. Further, the Defendant did not give the Plaintiff sufficient time to consider its position before calling an end to the agreement.

21. In the circumstances, I will make the declaratory order sought, that is, I will give the Plaintiff a declaration that the Plaintiff is entitled to rescind the agreement by reason of the Defendant's failure to prove and give good title in that (a) the Defendant has failed to answer the requisitions in the letters dated 8 and 10 January 1998 from the Plaintiff's solicitors and (b) that the utility room was an authorized building work.

22. I will also make an order in terms of para. 5 save that the amount of money there has already been paid into Court, so that I would in effect order that the sum paid into Court, with interest thereon, be paid out to the Plaintiff. I will give an order that damages for breach of contract be assessed by a master. There will be interest on all sums claimed. I have not been addressed in relation to the rate of interest and if the parties wish, they can come back later with liberty to apply to argue on the rate of interest.

23. The counterclaim is dismissed with costs and the Plaintiff is to have the costs in this action.