WORLDPART INDUSTRIAL LTD v. TSO HO SAN

HCA9351/1999, HCA9671/1999 & HCA1192/1999

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 9351 OF 1999

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AND

ACTION NO. 9671 OF 1999

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BETWEEN

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(CONSOLIDATED PURSUANT TO THE ORDER OF

MASTER LUNG DATED 17 FEBRUARY 2000)

AND

ACTION NO. 1192 OF 1999

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BETWEEN

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(HEARD TOGETHER)

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J U D G M E N T

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1. This judgment deals with three High Court actions consolidated for trial, due to the fact that the disputes between the same developer in all three actions on the one hand and the two purchases involved on the other hand are exactly the same.  That dispute between them arise from the sale of various units in a development known as Regency Court.

2. The developer concerned in all three actions is a company by the name of Worldpart Industrial Limited (“Worldpart”).

3. The two purchases involved are by the names of Chu Chow Ha Josephine (“Chu”) in HCA 1192 of 1999 and Tso Ho San (“Tso”) in the other two actions.

HCA 1192 OF 1999

4. In this action, Chu as plaintiff, brings this claim against Worldpart, claiming breach of agreement and wrongful repudiation by Worldpart in relation to two agreements for the sale and purchase of the 1^st and 2^nd floor of Block C, Regency Court.  In the same action, Worldpart counterclaims against Chu for damages for breach of the agreements by wrongfully repudiating both sale and purchase agreements.

HCA 9351 AND 9671 OF 1999

5. In HCA 9351 of 1999, Worldpart brings this claim against Tso for breach of three sale and purchase agreements in relation to the sale and purchase of the ground, 1^st and 2^nd floors of Block U, Regency Court, and/or wrongful repudiation of same.

6. However, instead of counterclaiming against Worldpart in HCA 9351 of 1999, Tso started HCA 9671 of 1999 claiming against Worldpart for breach and/or wrongful repudiation of all three agreements.  Effectively this is a counterclaim by Tso against Worldpart and when order for consolidation of all these actions were made, it was also ordered that the claim in HCA 9671 of 1999 stand as the counterclaim by Tso against Worldpart.

RESOLUTION OF THE TRANSLATION DISPUTE BETWEEN THE PARTIES

7. All the five sale and purchase agreements relating to the two units in Block C and the three units in Block U of Regency Court, being the subject matters of all the claims herein, were standard form agreements written in Chinese.

8. The crux of the dispute relates to two of the clauses which are exactly the same in wording in all the five agreements.  The first clause is head “Payment Method” and the second clause involved is clause 9, in each of the five agreements.  More specifically, the dispute arises from the three Chinese words used in both those clauses, namely (入伙紙). 

9. Initially, both the translation as well as the construction of these three Chinese words were in dispute between the parties.

10. In so far as the dispute relating to only the translation was concerned, it was the case of the purchasers, i.e. Chu and Tso, that the proper translation to be given to these three Chinese words should be “occupation permit”.

11. As against this, it was the case of Worldpart that these three Chinese words could also properly be translated as “certificate of compliance” and indeed in a certified translation of one of the agreements obtained by the solicitors for Worldpart, these three Chinese words were certified in that translation as “certificate of compliance”.

12. On the other hand, the certified translation of a similar agreement obtained by the solicitors for the purchasers translated these three Chinese words as “occupation permit”.

13. This issue on the translation of these three Chinese words ultimately resolved itself during the trial when the translator responsible for certifying the certified translation obtained by Worldpart gave evidence in the witness stand to the effect that, on second thoughts, she accepted that the more proper translation for these three Chinese words should be “occupation permit” rather than “certificate of compliance”.

14. In the light of that admission by the translator, who certified the translation relied on by Worldpart, there can be no further dispute, in so far as the translation issue is concerned, that the correct translation for these three Chinese words should be “occupation permit” and not “certificate of compliance”.

15. For the remainder of this judgment therefore, I shall use the words “occupation permit” in relation to those three Chinese words where they appear in the Chinese agreements for sale and purchase.

16. However, what remains in dispute between the parties in so far as these three Chinese words are concerned, is their proper construction in the context of the sales and purchase agreements involved.

THE REMAINING MAJOR DISPUTE BETWEEN THE PARTIES

17. As already indicated, central to the dispute between the parties is the Payment Method clause as well as clause 9in each of the agreements for sale and purchase.

18. All the five sales and purchase agreements were dated 11 March 1997.

19. The Payment Method clause in each of the agreement provides that the third 10% of the purchase price should be paid by the purchasers within 10 days of the issue of the occupation permit.

20. Clause 9 in each of the agreement provides that if no occupation permit was issued within 24 months from the date of the agreement, the purchaser will be entitled to cancel the agreement and [Worldpart] should repay all the sums paid by the purchaser with interests at the rate of 7% per annum.

21. In the case of Chu, there is no dispute that she had paid the first two 10% of the purchase price in respect of both units in Block C.  It is her case that in early October 1997, someone from Worldpart had orally represented to her that the occupation permit had been issued and therefore she was required to pay the third 10% of the purchase price.  Relying on that oral representation, she did in fact pay the third 10% of the purchase price in respect of both units.

22. However, in August 1998, when requisitions were raised by her solicitors with the solicitors representing Worldpart for the occupation permits, the reply given by the solicitors for Worldpart was that there was no occupation permit issued for the building, only Certificate of Compliance since no occupation permit was required for the building.

23. In the case of Tso, it is also not in dispute that he had paid the first two 10% of the purchase price in relation to all three units purchased by in Block U.  It is his case that the third 10% of the purchase price in respect of all three units never became due for payment by him, because no occupation permit had ever been obtained for the building by Worldpart.

24. It is therefore the case of both purchases, Chu and Tso, that obtaining an occupation permit by Worldpart was a condition precedent to the payment of the third 10% of the purchase price in respect of all the units purchased by them and that the failure of Worldpart to obtained an occupation permit was a wrongful repudiation of all the agreements by Worldpart, which they have accepted.

25. Turning now to deal with the case of Worldpart in the dispute between the parties.

26. It is the case of Worldpart that all the properties involved in this matter (as indeed the entire development of Regency Court) come within the Small House Policy of the Hong Kong Government for indigenous male villagers in the New Territories.  As such, under Part III of the Buildings Ordinance (Application to the New Territories) Ordinance, Cap. 121, the Director of Lands can grant certificate of exemption exempting buildings built under such Small House Policy from the requirements in the Buildings Ordinance, Cap. 123.

27. In the present case, three Certificates of Exemption and Building Licence in relation to Block C of Regency Court were issued on 22 July 1994.  As for in Block U of Regency Court, Certificates of Exemption and Building Licence were issued on 17 November 1994.

28. By reason of such exemption, no occupation permit was necessary and none issued by the relevant authorities.  Instead, only certificates of compliance were issued, which takes the place of occupation permits.

29. In the present case, the relevant Certificates of Compliance were issued in respect of Block C and Block U of Regency Court on 22 September 1997 and 20 January 1999 respectively.

30. Premiums were paid to the Hong Kong Government on 18 July 1998 and 20 November 1999 for Block C and Block U of Regency Court respectively.

31. It was also submitted on behalf of Worldpart that clause 9 of the sale and purchase agreements does not make the issuance of an occupation permit (as opposed to a certificate of compliance), a condition of the agreement.  Clause 9 merely sets the time of the payment in relation to the issuance of the document by the authority which would allow the lawful entry and occupation of the property by a tenant or owner of same.

32. In that sense, the issuance of the Certificate of Compliance is no different to issuance of an occupation permit and that where clause 9 refers to “occupation permit” that should be read and construed to mean “Certificate of Compliance” in order to give business efficacy to the sales and purchase agreements.

33. There is therefore no grounds upon which Chu and Tso can claim that the sale and purchase agreements have been repudiated by Worldpart.  Rather in failing to make payment under clause 9, in the case of Tso, he is in breach of the sales and purchase agreement.  As for Chu, in refusing to complete the sales and purchase agreements to which she is a party, she is in breach thereof.

FURTHER DISPUTES BETWEEN THE PARTIES

34. Quite apart from the main argument between the parties over the proper construction of the words “occupation permit” in clause 9 of all the sales and purchase agreements, there were two further points argued at the trial, firstly, breach of conditions 4(a) and 4(d) of the Building Licence and secondly, whether good title has been shown by Worldpart.

(a)  Conditions 4(a) and 4(d) of the Building Licence

35. It is the case of the purchasers that there was a breach of conditions 4(a) and 4(d) of the Building Licence at the time all the sales and purchase agreements were entered into between them and Worldpart on 11 March 1997.  In those circumstances the government had not waived its rights arising from such breach by the issuing of the Certificate of Compliance, alternatively, the issuing of the Certificate of Compliance does not remove the possibility of any successful assertion against a later buyer of any encumbrance over the land.

(b)  Good Title

36. The further point was raised by the purchasers that at the time of the sales and purchase agreements (11 March 1997), the title of the land in respect of Block C Regency Court was still with Ip, not Worldpart.  In the case of Block U Regency Court, the title to the land was still with Choy, not Worldpart.  Therefore in both cases, Worldpart did not have good title to convey when the sales and purchase agreements were entered into.

DECISION

37. Dealing first with the major dispute between the parties relating to the terms of the sales and purchase agreements, the relevant clauses in all of the sale and purchase agreements (being standard form agreements) are worded as follows :

“Method of Payment: HK$50,000.00 to be paid as initial deposit.  10% of the purchase price [initial deposit inclusive] to be paid within 10 days.  Another 10% of the purchase price to be paid within two months from the date of signing this agreement.  A further 10% of the purchase price to be paid within 10 days after the issuance of occupation permit.  At this stage, (the purchaser) can reside therein and carry out decoration.  The final balance [i.e. 70% of the purchase price] to be paid within one month after receiving Vendor’s notice.

….

9.  If, within 24 months from the date of this agreement, the occupation permit is not issued, the Purchaser has the right to revoke this Agreement and the Vendor shall refund to the Purchaser all payment [with 7% interest on the amount paid].”

38. There was no express provision in the sale and purchase agreements making it a condition for an occupation permit to be issued.

39. Looking at the above clauses, it is clear that the reference to “occupation permit” in all of those clauses is to pinpoint the time for the payment of the third 10% deposit in relation to when the occupation permit is to be issued.

40. There is no dispute that this development of Regency Court was indeed within the Small House Policy of the Hong Kong Government and as such it was exempted from the provisions of the Buildings Ordinance.  One effect of that was that it did not require any occupation permit to be issued before the buildings could be lawfully occupied.  It only required a Certificate of Compliance for that purpose.

41. In the absence of any express terms in any of the sale and purchase agreements making it a condition for the issuance of an occupation permit, the use of the words “occupation permit” in those agreements, in order to give those agreements business efficacy, must be read to mean “that document to be issued by the government in order to allow for the lawful occupation of the relevant unit”.  In this case that would be the Certificate of Compliance.

42. In so construing the sale and purchase agreements, I have taken into account that this very same point had been mentioned by the Court of Appeal in the case of Chao San San and Anr v. Worldpart Industrial Ltd (Civil Appeal No. 158 of 2002) and although it does not appear from that judgment that the point was actually decided, the appeal by the purchaser in that case was dismissed.  I note also that in the land in question in that appeal was the same development as in the present case, namely, Regency Court.

43. For these reasons, I am of the view that once the Certificate of Compliance was issued in the present case, both in respect of Block C and Block U of Regency Court, there can be no complaint by the purchasers that an occupation permit was not issued.

44. I turn now to deal with the breach of Condition 4(a) and (d) of the Building Licence.

45. Condition 4(a) and (d) provides as follows :

“4. (a) Except as provided in sub-clauses (b), (c) and (d) hereof, the Licensee (which expression shall, for the purpose of this Condition, include any mortgagee, whether legal or equitable, or an assignee of such mortgagee), having obtained this Licence on concessionary terms under the Small House Policy of the Government for indigenous villagers in the New Territories, shall not assign partition, mortgage, charge, demise, underlet, part with the possession of or otherwise dispose of the lot or any part thereof or any interest therin or any building or part of any building thereon or enter into any agreement so to do, whether directly or indirectly, or whether by way of direct or indirect reservation, grant of any right of first refusal, option, power of attorney, building agreement or through a solicitor, agent, contractor, trustee or otherwise howsoever unless –

(i) a period of five years has elapsed from the date of a letter issued by the District Lands Officer confirming that these Conditions have been complied with to his satisfaction, or

(ii)  the Licensee has paid to the Government the premium in accordance with Condition 4(d)(ii) hereof.

….

(d)  Upon certification by the District Lands Officer that these Conditions have been complied with to his satisfaction the Licensee may, with the prior written consent of the District Lands Officer and on such conditions as may be imposed by him (including the payment of such fee as may be required by him), assign (but not partition), mortgage, charge or part with the possession of the lot (as a whole only and not a part thereof) or the building or part of the building thereon or, subject to sub-clause (e) hereof, any interest therein or enter into any agreement so to do but only to -

(i) a male person at least 18 years of age who has satisfied the District Lands Officer that at the date of the application for such consent he is a person descended through the male line from a person who was in 1898 a resident of an established village in Hong Kong, or

(ii) a person other than a person referred to in sub-clause (d)(i) hereof provided the Licensee shall have first paid to the Government a premium equivalent to the full market value of the lot as at the date of the application to the District Lands Officer for such consent, such value to be determined by the District Lands Officer whose decision shall be final and binding upon the Licensee, whereupon, such premium having been paid and such consent having been obtained, sub-clauses (a), (b), (c) and (d) hereof shall be null and void and shall cease to have effect.”

46. The breach relied on by the purchasers was that at the time of the entering into of the sale and purchase agreement on 11 March 1997, no premium had been paid under the Building Licence.  The premiums were only paid to the Hong Kong Government on 18 July 1998 and 20 November 1999 in respect of Block C and Block U respectively.

47. This point had already been decided by the Court of Appeal in the case of Li Pui Wan v. Wong Mei Yin where the Court of Appeal held (on very similar facts) that even if the transaction had an element of illegality because the parties had not obtained the government’s consent and had not paid the additional premium, it did not constitute a breach of public policy.  They had intended to carry out and complete the transaction according to government regulations.  As such, the transaction was not a breach of public policy.

48. On the basis of that decision by the Court of Appeal, and in the light of the fact that the premium was in fact paid in the present case, albeit after the sale and purchase agreements had been entered into between the parties, there is no merit in this point taken by the purchasers.

49. Lastly, dealing with the point of title.  Once again the lack of title relied on by the purchasers relate to the time when the sale and purchase agreements were entered into.

50. On this point I accept the submission made by counsel for the developer that time was not made essence of the contracts between the parties and that there was no express provisions in the agreements that the developer has to show good title before the certification of the District Land Office and/or payment of premiums, therefore any requisition as to good title made before certification or consent is premature.

51. Accordingly, the developer was under no duty to show good title until such certification by the Land Office and consent had been obtained and the formal sale and purchase agreement entered into.

CONCLUSION AS TO LIABILITY

52. Accordingly and for the reasons given above, I come to the decision that both Chu and Tso are liable to Worldpart for breach of their agreements respectively as claimed or counterclaimed by Worldpart.

DAMAGES

53. I shall deal with the damages relating to the claim against Tso first.  Such damages relate to the ground, 1^st and 2^nd floors of Block U.  The ground floor was resold by Worldpart on 10 January 2000 at $1,680,000.00.  The 1^st floor was resold on 7 January 2000 at $1,616,000.00.  The 2^nd floor was resold by Worldpart on 17 January 2000 at $2,280,000.00.

54. In order to attract potential purchasers, because of the down turn in the property market, Worldpart had to spend $12,090.00 in respect of each unit by providing air conditioners, refrigerators, cooker hood and washing machines.

55. Worldpart also spent $653,050.00 for advertisement.  However, this amount relate to advertisement for 40 units.  In the case of Tso only three out of the 40 units were involved.  Therefore on a pro rata basis, the amount incurred for advertisement relating to the three units of Tso comes to $48,978.00.

56. Additional legal costs and stamp duties were also incurred by Worldpart.  Such additional legal costs and stamp duties for the ground, 1^st and 2^nd floors of Block U came to $24,500.00; $23,870.00 and $47,600.00 respectively.

57. Lastly, additional agency fees of $16,800.00 was also incurred for the ground floor of Block U.

58. The damages therefore works out as follows :

Difference between the contract and re-sale price
	For ground floor		$993,442.00
	For 1st floor		965,836.00
	For 2nd floor		1,102,345.00
Additional items for all three floors
	$12,090.00 x 3		36,270.00
	Advertising fees for the three units		48,978.00
	Additional legal costs and stamp duties for all three units		95,970.00
	Agency fees		16,800.00
		Sub-total:	$3,259,641.00
	Less amount of deposits paid totally		1,727,520.60
		Total:	$1,532,120.40

59. Turning now to deal with the damages claimed against Chu which relates to the 1^st and 2^nd floor of Block C.

60. Worldpart had tried to re-sell both units after Chu defaulted in completion.  However, Worldpart was only able to re-sell the 2^nd floor of Block C on 20 April 1999 for $1,813,800.00 being the best price obtainable.  The difference between the contract and re-sale price comes to $1,321,063.00.

61. As was the case with the units relating to Tso, Worldpart also had to attract potential purchasers by installing air conditioners, refrigerators, cooker hood and washing machines which cost $12,090.00.

62. There were also other additional costs incurred in the re-sale of the 2^nd floor being extra legal costs ($12,144.00), stamp duties ($13,704.00), agency fees ($13,603.50), advertising fees ($63,103.76) and fees for delivering promotional material ($2,000.00).

63. In respect of the 1^st floor of Block C, that unit could not be resold by Worldpart.  In an attempt to mitigate its loss however, Worldpart was able to let out the 1^st floor of Block C for a two year term from 1 April 2002 to 31 March 2004 at the monthly rental of $4,500.00. 

64. Although the 1^st floor of Block C remains unsold, it had been put on the market for re-sale by Worldpart at the asking price of $1,650,000.00.  Even though it has not been resold, Worldpart is prepared to accept the difference between the contract price and that asking price of $1,650,000.00 for the purpose of calculating its damages in this case.

65. The damages in so far as it relates to Chu will therefore be calculated as follows :

Difference in price of 2nd floor		$1,321,063.00
Extra and additional cost incurred for resale totally		116,645.26
Difference in price of unsold 1st floor		725,154.00
	Sub-total:	2,162,862.26
Less two years rental of 1st floor		108,000.00
Less total deposits paid		1,653,005.10
	Total:	401,857.16

CONCLUSION

66. In HCA 1192 of 1999, the plaintiff’s ((Chu Chow Ha Josephine) claim is dismissed.  There will be judgment for Worldpart on the counterclaim against Chu for the amount of $401,857.16.

67. Interests will be awarded on the amount of the counterclaim at 1% above prime from the date of the counterclaim in HCA 1192 of 1999.

68. In HCA 9351 of 1999, there will be judgment for Worldpart against Tso Ho San for the amount of $1,532,120.40.

69.. Interests will be awarded on the amount of the claim at 1% above prime from the date of the Writ in HCA 9351 of 1999.

70. The counterclaim of Tso Ho San against Worldpart as contained in HCA 9671 of 1999 is dismissed.

COSTS (ORDER NISI)

71.. There will be costs orders nisi as follows :

(1)	Chu Chow Ha Josephine to pay the costs of Worldpart in defending the claim in HCA 1192 of 1999 as well as the costs of the counterclaim by Worldpart.
(2)	Tso Ho San to pay Worldpart’s costs of the action in HCA 9351 of 1999 and also the costs of Worldpart in defending the counterclaim as contained in HCA 9671 of 1999.