SENG SUNG DEVELOPMENT CO LTD v. HONG KONG RESOURCES INVESTMENT CO LTD

HCA2231/2007

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 2231 OF 2007

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J U D G M E N T

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1.  In this action, the plaintiff claims against the defendant for specific performance of an agreement to sell and deliver certain units in a commercial and residential development in Xiamen, China and damages arising from breach of the agreement.

2.  By order dated 16 June 2008, it was ordered that several issues are to be tried before the other issues in the action.  This is the trial of the issues so identified in the Order.

3.  The defendant became unrepresented shortly before this trial. Their solicitors were granted leave to cease acting and they formally came off the record as the defendant’s solicitors on 18 March 2009.  The defendant did not appear at the trial.

The parties

4.  The plaintiff is a wholly owed subsidiary of Chiyu Banking Corporation (“Chiyu Bank”), which is a member of the Bank of China group.  The plaintiff is in the business of real estate investment in Xiamen.

5.  Until October 2005, the plaintiff owned all the issued shares of a company incorporated in the PRC called 誠信置業(厦門)有限公司 (“Seng Sun Xiamen”). 

6.  The defendant is a company incorporated in Hong Kong. The company search shows that at all relevant times a Madam Chen Xiaowen (陳曉雯) was the only shareholder and director of the defendant.

The development project

7.  At all material times, Seng Sun Xiamen is and was the owner of a piece of land in Xiamen (“the Land”), located to the north of Hubin North Road (湖濱北路) and to the east of United Overseas Bank (大華銀行).  After 1993, Seng Sun Xiamen had obtained approval to construct a commercial building on the Land.  Throughout, it has been the intention of Chiyu Bank to use part of the ground floor and first floor shop premises as the office of its Xiamen branch.  The Xiamen branch has since 1996 been operating from rented premises.   

8.  The building that was eventually built is a residential and commercial building.  It is named Chiyu Plaza (集友廣場).  In this action, the first floor and ground floor of the building have been referred to as “ 一層” and “二層” in Chinese respectively.

9.  Following a restructuring of the business of the Bank of China group in 2001, Chiyu Bank decided to dispose of the development project.  This cumulated in the sale and transfer of the plaintiff’s shares in Seng Sun Xiamen under three agreements, the subject matter of this action.

The Agreement

10.  By a Chinese agreement (協議書) dated 3 June 2002 (“the Agreement”) made between the plaintiff and Cosmos Super Investment Limited (嘉鍵投資有限公司) (“Cosmos”), the plaintiff agreed to sell all its interest in Seng Sun Xiamen to Cosmos in consideration of a sum of US$6,672,700 and the naming right of the building to be completed. 

11.  Under the Agreement, Cosmos agreed to, within seven days of obtaining the Permission to Sell (出售許可証), assign to the plaintiff or a company nominated by it (i) a shop space on the ground floor, (ii) a shop space on the first floor, and (iii) three car parking spaces at the price of US$800,000 (clause 2.01).  The premises to be conveyed are collectively referred to as the 交付單位 (the Units) in the Agreement.

12.  The Agreement further contained details of the location, area and specifications of the Units as follows (clause 2.03):

(a)   The shop space on the ground floor shall face Hubin North Road and located on the United Overseas Band side of the building. Its width shall not be less than 15m, its height shall not be less than 5 m, and the usable area (實用面積) shall not be less than 450 sq m.   

(b)  The shop space on the first floor shall have a usable area of not less than 450 sq m and the height shall not be less than 4m.

(c)  There is to be an internal staircase running between the ground floor and first floor units. The staircase shall be exclusively used by the two units and can be open for business.

13.  The Agreement further provided that the elevation plans and interior design plans of the Units had to be approved by the plaintiff before submission to the Xiamen City government, and that the materials used for and the quality of the Units have to be consistent with the plans approved by the building authorities (clause 2.04).

14.  The time for completion and delivery of the Units was stipulated to be not later than three years after the date of the execution of the Agreement, being 3 June 2005 (clause 2.05).

The Supplement Agreement

15.  Subsequently, the plaintiff and Cosmos executed a supplemental agreement (補充協議書) dated 21 October 2002 (“the Supplemental Agreement”) for the purpose of facilitating the intended takeover of the development project by Cosmos.  Among other matters, Madam Chen was appointed to the board of directors of Seng Sun Xiamen.  She later also became the chairman and authorised representative (法人代表) of Seng Sun Xiamen.  

16.  Under clauses 7 and 8 of the Supplemental Agreement, Cosmos agreed to strictly observe the obligations under the Agreement and to carry out all the terms of the Agreement.

The Substitution Agreement

17.  The planning approval for the building was given by the Xiamen City planning authority in May 2004 by the issue of the 建設工程規劃許可証.  Approval for carrying out the building work was given in April 2005 by the issue of the 建設工程施工許可証. 

18.  In the meantime, Madam Chen indicated to the plaintiff in November 2004 her intention to take over the development project from Cosmos.  At the same time, it was anticipated that the Units might not be able to be completed and assigned within the time stipulated in the Agreement.  After some negotiations and several meetings, the plaintiff, Cosmos and the defendant entered into a substitution of contractual duties agreement (約務更替契據) dated 22 June 2006 (“the Substitution Agreement). 

19.  In essence, the defendant was substituted for Cosmos for the purposes of the Agreement and the Supplemental Agreement.  The defendant shall undertake and perform all the obligations and responsibilities of Cosmos and shall have all Cosmos’ rights under the Agreement and the Supplemental Agreement as if the defendant was a party to the two agreements when they were executed (clauses 1 and 2). 

20.  Under the Substitution Agreement (clause 6(2)(2)), the delivery date of the Units was extended to 3 June 2007.  In return, the defendant was to pay the plaintiff a compensation equivalent to RMB 2 million.  The defendant further agreed to pay RMB 100,000 per month for any further delay after 3 June 2007.  In any case, however, the Units must be delivered by 3 December 2007.

21.  For the present trial, clause 6(2)(1) of the Substitution Agreement is of particular importance. It reads:

“按「協議書亅第2.01及2.03條規定，「交付單位亅的地鋪及對上一層樓的實用面積分别不少於450平方米，其中「交付單位亅所單獨使用的樓梯所佔用的面積計入實用面積之内，現由於大樓的設計方案已修改，按新的設計方案重新劃定交付單位的平面圖則(除平面圖則中有關樓梯部份由甲方提供修訂的設計外)、面積及前、側兩面的立面圖，如附圖所示(詳見附件三)。”

22.  In summary, the clause recited that under clauses 2.01 and 2.03 of the Agreement, the respective usable area of the ground floor shop space and the unit on the first floor shall be not less than 450 sq m, and the usable area shall include the area of the staircase to be exclusively used by the Units.  The clause went on to indicate that as a result of changes to the design of the building and based on the new design, the floor plans, area and elevation plans for the front and side of the Units had been recast, and that details of the revised plans and area are as set out in Annexure 3 to the Substitution Agreement.  The clause also indicated that the plans in Annex 3 did not show the internal staircase, the floor plan of which was to be provided by the plaintiff.

23.  In addition to this clause, the defendant also undertook in clause 6(2)(2) that the design of the Units should be based on the plans in Annexure 3 to the Substitution Agreement. (“丙方亦承諾交付單位必須按附件三之附圖設計。”)

Subsequent events leading to the present action

24.  The pre-sale programme for Chiyu Plaza was launched on 20 September 2005 and the Permit of Commodity Building for Presale (商品房預售許可証), giving permission for public presale, was issued on 30 September 2005.

25.  On 19 October 2005, the defendant’s application to the Xiamen City planning authority for approval of the plans in Annexure 3 to the Substitution Agreement was returned, with a Return Memorandum indicating that the application could not processed.  On enquires made by the plaintiff after the commencement of this action, the planning authority indicated that this was because the Permit of Commodity Building for Presale had already been issued and pre-completion sale had been launched, Annexure 3, which involved variation to the internal partitioning, could not be processed so as to protect the interests of the purchasers and to prevent disputes and litigations.

26.  At a meeting on 17 October 2005, the defendant’s representative, Mr Lim, informed the plaintiff’s representatives that despite a number of submissions, approval for the floor plans for the Units could not be obtained on the ground that amendments could not be made to the approved plans. The plaintiff’s representative reiterated that the Units must be in accordance with the Annexure 3 to the Substitution Agreement. 

27.  On 26 October 2005, the transfer of the shares in Seng Sun Xiamen from the plaintiff to the defendant was approved by the relevant authority in Xiamen (厦門市外商投資局).  Round about the same time, the plaintiff received news that the defendant and Seng Sun Xiamen had applied for and obtained the Permission to Sell.  It is not altogether clear from the evidence as to when exactly was the Permission to Sell granted. The plaintiff’s pleaded case is that this took place latest by June 2007 and this was admitted by the defendant in its Amended Defence.  The evidence of Mr Po Yuen Fung, who was involved in the project on behalf of the plaintiff since 2004, is that this was probably granted in September 2005.  In this trial, no issue turns on this.

28.  It is the plaintiff’s case that the shop spaces as built (unit 101 on ground floor and unit 201 on first floor) differ substantially from those contracted for both in terms of the layout, area and location.  According to the report dated 6 April 2007 prepared by the plaintiff’s surveyor, Xiamen Ludai Design and Decoration Company, the usable area of the unit on the ground floor and that on the first floor was 406 sq m and 342 sq m respectively. 

29.  At a meeting on 14 May 2007, the plaintiff’s representatives complained about the discrepancies.  In particular, it was pointed out to the defendants’ representatives that the discrepancy in the usable areas amounted to a breach of the parties’ agreement and the defendant must rectify it.  The defendant’s representatives responded that in terms of gross area, the two units that were built was each of 450 sq m and more. It was also suggested that the adjoining units had been sold and re-partitioning was not possible.  The plaintiff, however, did not accept this and insisted on strict performance of the agreements between the parties.

30.  By letter dated 17 May 2007, Seng Sun Xiamen informed Chiyu Bank that the units to be delivered measured 464.96 sq m and 480.84 sq m respectively in terms of 建築面積 (產權面積) (gross area (ownership area)). The letter further stated that ownership area (產權面積) represents the area legally owned by the owner under the law and that it includes the area of the unit itself (單位面積) and also common area (公用分攤).  The plaintiff wrote to the defendant on 21 May 2007, pointing out that the assertions made in Seng Sun Xiamen’s letter were unacceptable, having regard to clause (2)(1) of the Substitution Agreement.  The letter further reminded the defendant that the Units should be delivered to the plaintiff for use no later than 3 June 2007.

31.  By letter dated 1 June 2007, the defendant replied that as the Units were properties of Seng Sun Xiamen, issues relating to the areas and delivery date of the Units were matters between the plaintiff and Seng Sun Xiamen and the defendant was not responsible for delivering the Units. The letter also reiterated that the Xiamen City authority had in October 2005 refused to process and returned the revised plans for the Units (namely, Annexure 3 to the Substitution Agreement).

32.  The plaintiff wrote back on 5 June 2007, pointing out, inter alia, that the floor plans in Annexure 3 to the Substitution Agreement only involved partition of internal areas, and did not relate to structural and planning matters, hence would not require re-approval.

33.  On 21 June 2007, the plaintiff’s solicitors wrote to the defendant requesting for delivery of the Units in accordance with the terms of the Agreement and Substitution Agreement.  

34.  Further by letter dated 17 September 2007, the plaintiff’s solicitors also requested Seng Sun Xiamen to deliver the Units in strict accordance with the terms of the Agreement and Substitution Agreement.  Seng Sun Xiamen replied by letter dated 18 September 2007, stating that it was not a party to the contracts and was not bound by the terms of them.

The action

35.  On 25 October 2007, the plaintiff issued the writ herein.  On 31 October 2007, it obtained an interlocutory injunction restraining the defendant whether acting by itself or its directors, employees, agents or otherwise from procuring Seng Sun Xiamen to sell, transfer or disposing or parting with the Units.  On 1 November 2007, however, the defendant created further pledge on the building in favour of China Citic Bank. On 12 November 2007, Madam Chen ceased to be the director of the defendant. 

36.  The defendant filed a Defence on 5 December 2007. The pleadings had since undergone amendments.  On 16 May 2008, the plaintiff filed a Reply.

The plaintiff’s claim

37.  The plaintiff’s case is that it is an implied term of the Substitution Agreement that defendant shall procure Seng Sun Xiamen to effect the necessary assignments to assign the Units to the plaintiff or its nominated company and to otherwise comply with the provisions of the Agreement, Supplemental Agreement and the Substitution Agreement. In respect of the Units to be assigned, the plaintiff’s pleaded case is that they should be as per Annexure 3 to the Substitution Agreement.

38.  The plaintiff claims that the defendant has been in breach of the Agreement and the Substitution Agreement in failing to deliver the Units in accordance with Annexure 3 and the contractual provisions.  It seeks the following relief:

(1)  An order of specific performance of the Agreement, Supplement Agreement and Substitution Agreement that the defendant procures Seng Sun Xiamen to deliver the Units at the consideration of US$800,000.

(2)  Alternatively, an order directing the defendant to procure Seng Sun Xiamen to deliver those portions of the Units shaded on the plans in Annexure 2 to the Re-Re-Amended Statement of Claim with an abatement of price or payment of damages. 

(3)  As a further alternative, an order directing the defendant to procure Seng Sun Xiamen to deliver the Units as built with an abatement of price or payment of damages.

(4)  Liquidated damages of RMB100,000 per month from 3 June 2007 until delivery up of the Units or portions of the Units as provided in (1) or (2) above.

The Defence  

39.  The defendant does not dispute the making of the Agreement, Supplemental Agreement and Substitution Agreement. The Defence raises the following defences or issues:

(1)  The Agreement contained implied terms providing that:

(a)    The respective areas of the Units may vary so as to comply with the laws, regulations or administrative directives in the PRC;

(b)   If the respective area of the Units as built is more or less than 450 sq m within a reasonable margin, the consideration to be paid by the plaintiff shall be adjusted accordingly;

(c)    If the respective area of the Units as built is beyond the reasonable margin, the plaintiff shall have a right to call off the conveyance;

(d)   The reasonable margin was 3 to 5%.

(2)  Similarly, the Substitution Agreement contained implied terms providing that:

(a)   Annex 3 is subject to the approval of the relevant authorities in Xiamen.

(b)   The area of the Units may vary so as to comply with the laws, regulations or administrative directives in the PRC;

(c)    If the respective area of the Units as built is more or less than 450 sq m within a reasonable margin, the consideration to be paid by the plaintiff shall be adjusted accordingly;

(d)   If the respective area of the Units as built is beyond the reasonable margin, the plaintiff shall have a right to call off the conveyance;

(e)    The reasonable margin was 3 to 5%.   

(3)  The plans in Annexure 3 to the Substitution Agreement were rejected by the Xiamen building / planning authority.

(4)  The plaintiff knew or ought to have known that the area covered by Annexure 3 to the Substitution Agreement had included common area or fire exit route or staircase.

(5)  It was a mistake of the plaintiff and the defendant to have included the fire exit route and staircase in the plans in Annex 3 of the Substitution Agreement.

(6)  The units as built conform or in substance confirm to the Agreement, the Supplemental Agreement and the Substitution Agreement. The legal or ownership area of the ground floor and first floor units as built are in excess of 450 sq m.  The measurement adopted by the plaintiff did not include areas covered by the toilets, fire exit route and staircase on the ground floor and first floor.

(7)  The defendant had procured Seng Sun Xiamen to send to Chiyu Bank a draft agreement for the sale of the units as built, but Chiyu Bank and the plaintiff refused to accept it.

(8)  Under Chinese law, Seng Sun Xiamen is unable to deliver any shop spaces on the ground floor and first floor other than the units as built.

(9)  The plaintiff is not entitled to any relief, other than the units as built, but without abatement in price or damages.

The main issues in this action

40.  Accordingly, on the pleadings, the main areas of dispute between the parties turn on:

(1)  Whether the units to be delivered and assigned to the plaintiff should be in accordance with Annexure 3 to the Substitution Agreement.

(2)  Whether the plaintiff and the defendant acted under a mistake in agreeing to the plans in Annexure 3 in that the areas marked on the plans had included the fire exit route and staircase and other common areas.

(3)  Whether the units as built and offered to be assigned to the plaintiff conform or in substance conform to the several agreements.

(4)  Whether the defendant can lawfully deliver to the plaintiff the units as per Annexure 3 to the Substitution Agreement or alternatively as per Annexure 2 to the Re-Re-Amended Statement of Claim. 

(5)  Depending on the findings on the above, whether the plaintiff is entitled to the relief sought, including abatement of price and damages, and what is the quantum of damages to be awarded.

The issues in the 1^st trial

41.  By the Order of 16 June 2008, the following issues are ordered to be tried before the other cases:

(1)  Whether the defendant should procure Seng Sun Xiamen to deliver to the plaintiff:

(a)    The Units as per Annexure 3 to the Substitution Agreement; or

(b)   The Units as per Annexure 2 to the Re-Re-Amended Statement of Claim; or

(c)    The Units as built.

(2)  In particular:

(a)    Whether there are implied terms as pleaded in paragraphs 8 and 18 of the Amended Defence (i.e. as per (1) and (2) in paragraph 39 above), and if so their effect on Issue (1) above.

(b)   Whether the plaintiff knew or ought to have known the area enclosed by Annexure 3 to the Substitution Agreement should include the common area or fire exit route and staircase and/or it was a mistake of both the plaintiff and the defendant to have included the fire exit route and staircase in Annexure 3 to the Substitution Agreement, and if so its effect on Issue (1) above.

(c)    Whether the units as built conform or in substance conform to the Agreement, the Supplemental Agreement and the Substitution Agreement, and if so its effect on Issue (1) above.

(d)   Whether Seng Sun Xiamen is unable to deliver any shop spaces on the ground floor and the first floor of the building other than the Units as built, and if so the effect on Issue (1) above.

(e)    Whether the plaintiff should have provided a plan of the staircase to the defendant, and if so its effect on Issue (1) above.   

42.  At the commencement of this trial, Mr Dawes indicated that after due considerations, the plaintiff no longer insisted on being assigned with units constructed in accordance with Annexure 3 to the Substitution Agreement.  Instead, the plaintiff will only be contending that the units to be conveyed should conform to Annexure 2 to the Re-Re-Amended Statement of Claim.

The evidence

43.  The plaintiff had called two witnesses. The first is Mr Po Yuen Fung, who is the plaintiff’s Company Secretary and was involved in the project since about 2004.  The second is 王少華  (“Mr Wong”).  Mr Wong had since 1997 and until 2006 been involved in the project. He was also present at the meetings between the parties, including meetings in which the terms of the Substitution Agreement were discussed.

44.  Both Mr Po and Mr Wong had adopted their witness statements.  Their evidence mainly deals with the events leading to the conclusion of the several agreements and the present proceedings, as outlined above.  Most of their evidence is evidenced or supported by contemporaneous documents, including minutes of meetings and correspondences exchanged between the various parties. 

45.  The two witnesses had also in their witness statements dealt with allegations made by the defendant in affirmations filed in the interlocutory proceedings.  Although some of these allegations were repeated in the witness statement of the defendant’s witness, given that the defendant did not adduce any evidence at the trial, there is no need to canvass these allegations and the evidence of the plaintiff’s witnesses in response to them.  It is only necessary to note that some parts of what Mr Po and Mr Wong had mentioned in their witness statements were matters related to them by others, such as Mr Ng Man Kung of the plaintiff. These are of course hearsay matters.

46.  Apart from the hearsay matters to which I attach no weight, I accept the evidence of the two witnesses. 

47.  In addition, the plaintiff had also called two experts in relation to the PRC law and also architectural practices in the PRC.  The scope of the expert evidence to be adduced at the 1^st trial is set out in the Combined List of Issues attached to the Order of 16 June 2008.  Broadly speaking, the PRC law expert is to deal with: (i) whether the PRC laws and regulations prevent the conveyance of the units as contracted for, or as per Annexure 2 to the Re-Re-Amended Statement of Claim; (ii) the meanings of usable area (實用面積), common area (分攤面積) and legal or ownership area under the PRC law; and (iii) whether Annexure 3 to the Substitution Agreement is subject to approval by the government authority.  As for the architect, it is to deal with (i) whether and if so which aspect of Annexure 3 to the Substitution Agreement would require approval; and (ii) the practices in the PRC relating to the physical areas of units and apportioning of common areas to shop spaces as built. 

48.  The first plaintiff’s expert is周信東 (“Mr Zhou”), who is a practising lawyer in Xiamen.  In considering Mr Zhou’s report and evidence, I bear in mind that clause 8.01 of the Substitution Agreement provided that the agreement shall be governed by and construed in accordance with Hong Kong law.  Hence, the expert is not required to and should not be dealing with construction of the contractual provisions as a matter of the PRC law. 

49.  In essence, Mr Zhou stated that the PRC contract law does not prohibit the sale and assignment of units in accordance with Annexure 3 to the Substitution Agreement provided that Annexure 3 does not contravene the mandatory requirements relating to planning and fire exit.  He also stated that although the PRC law does not define usable area (實用面積) and that a sales contract is required to state the gross area and common areas, the PRC law does not prohibit the parties to contract on the basis of usable area.  Mr Zhou further stated that under the PRC law, areas that had been sold to third parties and areas designated as common areas could not be legally sold and assigned.  In respect of common areas, under the PRC law, Seng Sun Xiamen as the developer is obliged to apportion the common areas to the units as built and that the apportioned common areas would form part of the legal or ownership area of the unit in question and could be sold and assigned with it.

50.  The second plaintiff expert is 吳至尊 (“Mr Ng”), who is a Class 1 Architect practising in the mainland.  Mr Ng’s evidence is that government approval to Annexure 3 to the Substitution Agreement is required before construction work can be carried out.  He had studied and compared Annexure 3 and the related plans that had been approved in 2004 and 2005.  He identified that the areas of the Units as indicated on Annexure 3 had included areas designated as fire exit route and staircase on the earlier approved plans.  The resulting cancellation or repositioning of fire exit route and staircase on Annexure 3 was contrary to the PRC fire regulations.  In his opinion, although the matter could have been rectified at an earlier stage, given that the building had since been completed and the fire exit route and staircase had been built in accordance with the approved plans, it is now practically not possible to obtain approval for Annexure 3. 

51.  In respect of the common areas on the ground floor that were apportioned to units 101 and 201 (which the defendant proposed to deliver to the plaintiff), Mr Ng is of the opinion that it is wrong to apportion the public lavatory (WC1) to the units because this will deprive public access to the only lavatory facility on the floor. 

52.  In connection with the repositioning of the partitioning wall separating units 101 and 102, Mr Ng stated that this is a matter of internal partitioning and does not require government approval.  He held the same opinion in respect of repositioning the partitioning wall of units 201 and 202.

53.  I accept both Mr Zhou and Mr Ng are qualified to give expert opinions on matters of the PRC law and architectural practices respectively.  I accept their expert opinions as stated in their reports and in oral testimony.

Issue (2)(a)

54.  On the basis of the evidence adduced, I turn now to deal with the six issues to be determined in this 1^sttrial. Having regard to the fact that the resolution of the issues in Issue (2) may impact on Issue (1), I shall begin with Issue (2).

Issue (2)(a)

55.  Issue (2)(a) relates to the two implied terms raised by the defendant in its Defence.  The essence of these implied terms is to allow a margin of 3% to 5% in respect of the area of the shop spaces to be delivered to the plaintiff under the Agreement and the Substitution Agreements.

56.  It is unclear from the Amended Defence as to the legal and/or factual basis for the two implied terms.  In the witness statement of the intended defence witness, references were made to the sample sale and purchase agreement for the non-consent scheme in Hong Kong and also to a draft sample agreement for sale and purchase of commodity building (商品房買賣合同草稿文本) issued by the government authorities of Xiamen.  These documents are entirely irrelevant and cannot form any proper basis for implying into the Agreement and the Substitution Agreement the terms pleaded in the Amended Defence.  Other than this, there is no indication from the materials before the court as to how the proposed terms can be read into the Agreement and the Substitution Agreement.

57.  In addition, the two implied terms are prima facie at odd with the express terms of the Agreement and the Substitution Agreement, which stipulated that the usable area for the units to be not less than 450 sq m or 420 sq m.

58.  It follows that Issue (2) must be resolved against the defendant.  I find the Agreement and the Substitution Agreement do not contain the implied terms pleaded in paragraphs 8 and 18 of the Amended Defence.

Issue (2)(b)

59.  Issue (2)(b) relates to the fire escape route and staircase and the common areas that are covered by the areas marked on Annexure 3 to the Substitution Agreement.  As indicated by the evidence of the plaintiff’s architect, Mr Ng, these common facilities and common areas were already so designated on the plans approved by the Xiamen authorities in 2004 and 2005.  It is the defendant’s case that the plaintiff was made aware of this or that it should have knowledge of this.  On this basis, the defendant contends that it was a common mistake on the parties to have included in Annexure 3 the areas already designated for these common facilities and common areas.

60.  Plainly, there is no evidence before the Court to demonstrate how it is that the plaintiff had been made aware or that it should have known of the inclusion in Annexure 3 of the areas designated for the fire exit route and staircase and the common areas.  This allegation of knowledge is not substantiated

61.  There is also no material to support the plea of common mistake.  In the meeting of 7 January 2005, the plaintiff’s representative expressly requested the repositioning of the fire exit route and staircase, which in my view negates any mistake on the part of the plaintiff on this matter.  The defence of common mistake is not made out.

Issue (2)(c)

62.  Issue (2)(c) relates to whether the units as built conform or in substance conform to the Agreement, Supplemental Agreement and the Substitution Agreement. In this connection, it is useful to note the differences between the Units as marked on Annexure 3 to the Substitution Agreement, and that as marked on Annexure 2 to the Re-Re-Amended Statement of Claim as well as units 101 and 201 that had been built.   

63.  In terms of the areas enclosed, Annexure 3 had included areas on which the fire exit route and staircase now stand whereas both Annexure 2 and the units as built do not.  In terms of the actual area or usable area, under Annexure 3, the unit on the ground floor will be no less than 450 sq m and that on the first floor is to be no less than 420 sq m.  As found by the plaintiff’s surveyor, the usable area of the units as built is considerably less, being 406 sq m and 342 sq m respectively. Annexure 2 proposes to enlarge the areas of the units by repositioning the partitioning wall separating the units and their respective adjoining units (i.e. units 102 and 202).  The difference in area between Annexure 2 and the units as built is 50.37 sq m and 45.54 sq m respectively for the ground floor and the first floor.  In addition, there are also differences in terms of the layout of the units on Annexure 3, Annexure 2 and those as built. 

64.  In light of the evidence before the court, there are clearly material differences between the units as built and the contractual provisions relating to the usable area and also the layout and size as marked on the plans in Annexure 3 to the Substitution Agreement.  It follows that the defence case that the units as built conform or in substance conform to the several agreements between the parties cannot be upheld.

Issue (2)(d)

65.  Issue (2)(d) is about the ability of Seng Sun Xiamen to deliver to the plaintiff shop spaces on the ground floor and the first floor of the building, other than units 101 and 201.   In other words, whether it is legally and practicably feasible for the defendant to deliver to the plaintiff the Units as contracted for.

66.  The only relevant evidence on this issue comes from the plaintiff’s two experts.  In a nutshell, their evidence is that it will not be possible now to obtain government approval to Annexure 3 to the Substitution Agreement, having regard to the positions of the fire exit route and staircase, which are located within the areas of the Units marked on Annexure 3.  However, there are no impediments to moving the partitioning wall between units 101 and 201 and their respective adjoining units so as to enlarge the area of unit 101 and 201 (i.e. as per Annexure 2 to the Re-Re-Amended Statement of Claim), provided that the adjoining units have not been sold to third party.

67.  This brings me to the question of  whether the adjoining units (i.e. units 102 and 202) had already been sold by Seng Sun Xiamen.  The defendant had at meetings with the plaintiff suggested that these adjoining units had already been sold.  Mr Wong of the plaintiff also mentioned that staff of Xiamen branch of Chiyu Bank had heard similar things, which is of course hearsay. 

68.  What is of significance is that despite orders for specific discovery and the administration of interrogatories, the defendant had not disclosed any documentary evidence to substantiate the sale or assignment of the adjoining units.  In affirmations verifying discovery and answering interrogatories, the defendant’s representatives initially stated that the defendant and Seng Sun Xiamen did not have the sale and purchase agreement(s) for units 102 and 202. When pressed for clarifications, the defendant’s director changed to state that the defendant previously had, but no longer has, the sale and purchase agreement(s) and believe that they had been lost.  It was further stated that the exact date(s) of signing the agreement(s) could not be remembered, but that this should be in December 2005.  The defendant’s assertions are unsatisfactory and hard to believe. 

69.  Other than what the defendant’s director had stated in answer to the Interrogatories, there is no evidence to show that the adjoining units had indeed been sold such that repositioning the partitioning wall to enlarge the areas of units 101 and 201 cannot be done.

70.  In the circumstances, there is no or no credible basis for contending that the units as built are the only shop spaces on the ground floor and the first floor that Seng Sun Xiamen is able to deliver to the plaintiff.

Issue (2)(e)

71.  Issue (2)(e) is about whether the plaintiff is obliged to provide a plan for the construction of the internal staircase.  The plaintiff does not dispute that it should provide the plan. 

72.  However, the defence case seems to go further and suggests that the area of the staircase should be added to the areas of the shop spaces in reckoning the gross area (建築面積) of the units to be delivered to the plaintiff.  This is, to put it shortly, double counting and cannot be right.  I do not read clause 6(2)(1) of the Substitution Agreement to give rise to such effect. 

73.  Hence, on this issue, while holding that the plaintiff is under an obligation to provide the plan for the internal staircase, I find it has no bearing on Issue (1). 

Issue (1)

74.  I turn finally to Issue (1), which is a core issue in this action.  Issue (1) requires a determination on whether the defendant should procure the delivery to the plaintiff the Units as per Annexure 3 to the Substitution Agreement, or as per Annexure 2 to the Re-Re-Amended Statement of Claim or as built.  The reference to Annexure 3 to the Substitution Agreement is no longer pertinent since the plaintiff does not now pursue this. 

75.  Insofar as this issue involves determining whether there is an implied term under the Substitution Agreement that the defendant shall procure Seng Sun Xiamen to make delivery and assignment of units to the plaintiff, I am of the view that such a term is to be implied as a matter of giving business efficacy to the agreement, having regard to the fact that the conveyance of shop spaces on the ground floor and first floor is an important aspect of the Agreement and Substitution Agreement and that the land on which the building stands is owned by Seng San Xiamen, whose shares became owned by the defendant in October 2005.

76.  I turn next to the question of whether the units to be delivered to the plaintiff should be in accordance with Annexure 2 to the Re-Re-Amended Statement of Claim or as built. In light of the findings on the issues under Issue (2), especially the finding that it is possible for Seng Sun Xiamen to deliver to the plaintiff the areas as marked on Annexure 2 to the Re-Re-Amended Statement of Claim, I hold that the defendant should procure Seng Sun Xiamen to deliver to the plaintiff the Units as per Annexure 2 to the Re-Re-Amended Statement of Claim.