XCHRX KAR HO DEVELOPMENT CO. LTD. v. FINEABLE (PACIFIC) LTD.

HCA16759/1999

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO.16759 OF 1999

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J U D G M E N T

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1. This is an appeal from Master Lung's decision. The plaintiff applied to strike out a number of paragraphs in the defence and counterclaim. Having heard the parties, Master Lung refused the application except in relation to paragraph 21. Hence, the plaintiff took out this appeal.

Background

2. The plaintiff, Kar Ho Development Company Limited, is the developer and vendor of Laguna Verde, an incomplete development under the consent scheme. The defendant is the purchaser of one of the units in Phase I of the development. The Sale and Purchase Agreement was made on 26 March 1997 between the parties. The purchase price was HK$7,745,000. The purchaser had duly paid a total amount of HK$2,323,500 as deposit and part payments for the unit on divers days. The contractual completion date was 30 November 1997.

3. By a letter dated 18 November 1997, the plaintiff's solicitors notified the purchaser that pursuant to Clause 4(5) of the Sale and Purchase Agreement, the Authorized Person, Hsin Yieh Architects & Associates Limited, had granted an extension of 131 days for the completion of the building. In its letter dated 7 November 1997, the reason given by the Authorized Person was that "The extension of time hereby granted by me appear to be reasonable having regard to delays caused by the fire and inclement weather which occurred during the construction period of the Development". Based on this extension, the new completion date should therefore be 10 April 1998.

4. However, on 9 January 1998, solicitors for the purchaser wrote to the plaintiff's solicitors asking for information regarding the extension and the particulars of the events giving rise to the need for such an extension. The purchaser also reserved all its rights to reject the extension.

5. The plaintiff had basically ignored the request and simply followed the new schedule in relation to the development. On 25 June 1998, the plaintiff informed the defendant that the property was ready to be assigned. However, the defendant refused to do so. In the meantime, the defendant had conducted its own investigation. Subsequently, the defendant wrote to the plaintiff stating that in view of the rainfall record, the plaintiff was, at most, entitled to an extension of 44 days and not 131 days. The defendant argued that the plaintiff had therefore breached the Sale and Purchase Agreement by not having completed the building on time. Hence the defendant asked for rescission of the Agreement and by virtue of the counterclaim, it also sued for, inter alia, the return of the deposit and the part payments.

The appeal hearing

6. On the date of the hearing of the appeal, the defendant had failed to appear by around 11:00 a.m. I was told that the defendant's solicitors had obtained an order to cease to act for the defendant. The notice of appeal was filed on 31 March 2000. The defendant clearly had knowledge about the schedule of the present hearing. In the circumstances, I took it that the defendant chose not to appear to contest the appeal lodged by the plaintiff. I proceeded to hear the plaintiff's application ex parte.

7. Mr Kwok, for the plaintiff, had very helpfully prepared a skeleton argument. His main point, put succinctly, was that even if the plaintiff had failed to complete the buildings by the original contractual deadline of 30 November 1997, the defendant was still not entitled to rescind the Agreement for the simple reason that the option to rescind must be exercised within 28 days from 30 November 1997, by virtue of Clause 4(4)(b). As the defendant had not done so by 28 December 1997, it would be deemed to have elected to accept the extension and to wait for the completion. It was argued that any subsequent claim for rescission under Clause 4(4)(a) was bound to fail.

8. One issue I raised with the plaintiff was concerning the true effect of the term "deemed to have elected to wait for completion" in the Agreement and whether it was irrevocable. Furthermore, I invited submissions as to whether the purchaser, on discovering there could be some "problems" regarding the basis of the grant of extension by the Authorized Person, could ask for clarification beyond the 28 days and then chose to exercise its right of rescission.

9. The plaintiff's submission was that once the defendant was deemed to have elected to wait for completion, it would be final. However, Mr Kwok accepted that it might have been different if the defendant had raised the enquiry and reserved its rights to rescind within the 28 days period.

10. The court, of course, has jurisdiction to strike out a defence if it is bound to fail, but it is a jurisdiction which ought to be sparingly exercised and should only be used in very exceptional cases. In order to justify such a course of action, it must appear to the court that the defendant plainly has no bona fide defence. (See Hutchvision Asia Ltd v. Asia Television Ltd [1993] 2 HKC 510.) In the present case, the plaintiff was not asking to strike out the whole of the defence, but effectively the end result would be leaving the defence with just a basic traverse of the plaintiff's case. In any case, I consider that the applicable principles would be the same.

Conclusion

11. Having heard the plaintiff and considered the written submissions, in the absence of any contrary arguments before me regarding, inter alia, the issues of the validity of the extension, the meaning of "deemed" and the related issues, I took the view that I should give judgment to the plaintiff and allow the appeal.

Order

12. In the premises, I had ordered that :-

(1) Paragraphs 1 and 2 of the order by Master Lung dated 27 March 2000 shall stand, whereas paragraph 3 of the said order be set aside;

(2) Order in terms of paragraphs 2 and 3 of the Notice of Appeal filed by the plaintiff dated 30 March 2000; and

(3) Regarding the said paragraph 3 in (2), i.e. the cost order, such costs shall be paid forthwith to the plaintiff, to be taxed if not agreed.