IP TSZ LAM ADA v. PEARL WISDOM LTD

  HCA 2482/2007

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 2482 OF 2007

----------------------

----------------------

----------------------------------------------------

  REASONS  FOR  JUDGMENT

---------------------------------------------------

1. On 2 April 2009 I dismissed the plaintiff’s application by summons dated 16 January 2009 for leave to amend the statement of claim with costs to the defendant.  I indicated at the time that reasons would be given later.  I now do so.

2. By a sale and purchase agreement dated 21 March 2006 (“the agreement”) between the plaintiff as purchaser and the defendant as vendor, the plaintiff purchased Flat G on the 23^rd floor of Service Apartment Tower 1 of the development then under construction (“the property”) at the price of $4,431,000.

3. By clause 4(1)(c) of the agreement the defendant covenanted to complete the development in all respects in compliance with the condition of the Government Grant, the building plans and the agreement, incorporating in the property the fittings and finishes as set out in Schedule 5 to the agreement, on or before 31 August 2007 subject to such extension of time as may be granted by the Authorised Person in accordance with clause 4(5)(a).

4. By clause 4(5)(a) the defendant was entitled to such extensions of time for completion of the development beyond the date stated in clause 4(1)(c):

“…. as shall be granted by the Authorized Person and appear to him to be reasonable having regard to delays caused exclusively by any one or more of the following reasons: -

(i)  …

(ii)   …

(iii)  …

(iv)  …

(vi)  Inclement weather and for the purpose of [the agreement] inclement weather means rainfall in excess of 20 millimetres in a twenty-four hour period (midnight to midnight) as recorded at the Hong Kong Observatory, a Rainstorm Black Warning is issued or the hoisting of Typhoon Signal No. 8 or above at any time between the hours of 8:00 a.m. to 5:00 p.m.”

5. By clause 4(5)(b) the defendant covenanted to notify the plaintiff in writing within 14 days from the issue of any such extensions of time granted by the Authorized Person and furnish the plaintiff with a copy of the relevant certificate of extension.

6. Time was of the essence of the agreement (clause 15).

7. Pursuant to the agreement the plaintiff paid a total sum of $4,431,000 to the defendant in accordance with the terms of the agreement as varied by a supplemental agreement signed on 17 January 2007.

8. By a certificate dated 23 April 2007 (“the certificate”) the Authorized Person granted to the defendant an extension of 67 days beyond 31 August 2007 for the completion of the development (“the extension”).  By a letter dated 30 April 2007 the defendant notified the plaintiff of the issue of the certificate.

9. The date of completion of the development was extended to 6 November 2007 by the certificate.

The plaintiff’s pleaded case

10. The plaintiff’s case as pleaded in the statement of claim is that in breach of clause 4(1)(c) of the agreement the defendant failed to complete the development by 6 November 2007.  The plaintiff became entitled to rescind the agreement pursuant to clause 4(4)(a) of the agreement and by her solicitors’ letter dated 7 November 2007 she gave notice of rescission to the defendant’s solicitors.  The agreement was rescinded on 14 November 2007 and the plaintiff is entitled to repayment of the said sum of $4,431,000 with interest in accordance with clause 4(4)(a) of the agreement (paragraphs 15 to 17 of the statement of claim).

The defence and counterclaim

11. The defendant denies that the plaintiff was entitled to rescind the agreement or to give the notice of rescission by her solicitors’ letter dated 7 November 2007 or otherwise.

12. The defendant further pleads that by a certificate dated 6 November 2007, the Authorized Person certified that the development had been completed in all respects in compliance with the conditions of the Government Grant in so far as they relate to the development and the building plans.  By a letter dated 19 November 2007 the Authorized Person applied for the Certificate of Compliance to be issued in respect of the development.  By a letter dated 18 December 2007 the Director of Lands gave the defendant the consent to enter into assignments in respect of the development (“consent to assign”) and by clause 4(7) of the agreement the issue of the consent to assign is conclusive evidence that the development has been completed or is deemed to be completed as the case may be (paragraph 6 of the defence and counterclaim).

13. There is also a counterclaim by the defendant for specific performance of the agreement with all necessary accounts and inquiries or damages in lieu, a declaration that the agreement has not been validly terminated by the plaintiff, damages, interest and costs.

14. Pursuant to clause 5(1) of the agreement, by its solicitors letter dated 20 December 2007 the defendant notified the plaintiff that the consent to assign had been issued and gave notice that the defendant was in a position to validly assign the property.  The plaintiff has failed and refused to complete the sale and purchase of the property.  The defendant is ready, willing and able to complete the sale and purchase.  The defendant has suffered loss and damage as a result of the plaintiff’s breach of the agreement (paragraphs 14 to 17 of the counterclaim).

The application to amend

15. The plaintiff applies to amend the statement of claim by adding a new cause of action.  The substance of the amendments is pleaded in paragraphs 14 to 18 of the proposed amended statement of claim (“the amendments”) as follows:

“Termination

14.  In reliance on the representation contained in the letter dated 30 April 2007, and induced thereby, the Plaintiff did not exercise its right of rescission under clause 4(4)(a) of the Agreement immediately after the passing of the unextended deadline for the completion of the Development of 31 August 2007.

15.  Clause 4(5)(a)(vi) of the Agreement specifically provides that the Authorized Person was only authorized to grant an extension of time based on rainfall data records of the Hong Kong Observatory, the issuance of Rainstorm Black Warnings and the hoisting of Typhoon Signal No. 8’s.  In breach of the Agreement the Authorized Person granted an extension of time for 67 days when the Defendant was only entitled to a maximum of 31 days to complete the Development in accordance with the terms of the Agreement.

16.  In breach of its contractual duty of care the Defendant’s representation was false for the reason given in paragraph 15 above and was made negligently for the reason that the Authorized Person was, inter alia, employed by the Defendant to issue certificates for extension of time under clause 4(5)(a) of the Agreement and owed the Plaintiff a duty to ensure that such were correct.

17.  In the premises, the Certificate of Extension is void and therefore the time by which the Defendant had to complete the Development under the terms of the Agreement was never extended beyond 31 August 2007.

Particulars of damage

   Lost opportunity to rescind the Agreement immediately after the contractual completion date of 31 August 2007

18.    In the premises the Plaintiff has suffered loss and damages and seeks to terminate the Agreement with effect from 31^st August 2007.”

16. The plaintiff seeks to amend the prayer for relief by including:

“ 3)   Alternatively, termination of the [agreement] together with damages.”

17. Mr Haddon-Cave, for the plaintiff, submitted that the plaintiff became concerned with the certificate extending the time for completion of the development and through her solicitors enquired from the Hong Kong Observatory about the weather for the relevant period.  The reply from the Hong Kong Observatory showed that there were only 31 days of inclement weather as defined in clause 4(5)(a) of the agreement instead of the 67 days certified by the Authorized Person and because of this the plaintiff seeks to add a new cause of action by the amendments.

18. The principles governing applications to amend pleadings are well known and it is not necessary to repeat these here.

19. Mr Chan SC, for the defendant, submitted that the amendments were useless and ought not to be allowed.  It seems to me that where it can be demonstrated that the amendments are liable to be struck out then the court should not allow the amendments to be made.

20. Mr Haddon-Cave made it plain that the new cause of action was in contract.  He submitted that the defendant had a contractual duty of care to ensure that the Authorized Person’s certificate granting the extension of time that was passed onto the plaintiff was issued in accordance with the agreement.  This was not an express term in the agreement.  Mr Haddon-Cave submitted that the plaintiff was relying only on an implied term in the agreement that the defendant had a duty of care to ensure that the Authorized Person’s certificate granting the extension of time that was passed onto the plaintiff was issued in accordance with the agreement (“the implied term”).

21. Mr Haddon-Cave submitted that the plaintiff relied on two matters in asking the court to imply the implied term as follows:

(1) the inequality of bargaining position between the plaintiff and the defendant; and

(2) the fact that the plaintiff has relied on the statement in the certificate as being perfectly good when it was anything other than good.

22. As to (1), it is important to bear in mind that the agreement was a sale and purchase agreement in the standard form under the Consent Scheme.  As such, it was agreed upon by the Director of Lands and the Law Society.  That being so, I fail to see how it can seriously be suggested that because of the inequality of bargaining position between the plaintiff and the defendant the court should imply the implied term.

23. The standard form of sale and purchase agreement under the Consent Scheme has been held to be valid and enforceable in, inter alia, the cases cited by Mr Chan.  These are Yau Chin Kwan & another v Tin Shui Wai Development Ltd [2003] 2 HKLRD 1; Liu Chung Fai v Tin Shui Wai Development Ltd [2007] 4 HKLRD 350; Tsang Man Chung v Kar Ho Development Co. Ltd (HCA 8534/1999; Chung J, 16 August 2001); Concord Property Development Ltd v Li Pui Leung and Lee Pui Ha (HCA 7923/2000; Deputy Judge Muttrie; 31 May 2005).

24. It seems to me that the first matter relied on in seeking to imply the implied term is unsustainable.

25. The second matter relied on is the fact that the plaintiff has relied on the statement in the certificate as being perfectly good when it was anything other than good.

26. The certificate is dated 23 April 2007.  The plaintiff was given notice of this certificate by a letter dated 30 April 2007.  Any reliance on the statement in the certificate can only have been on or after that date.

27. The plaintiff cannot rely on subsequent acts to ask the court to imply a term in the agreement.  The agreement was made on 21 March 2006.  The subsequent acts only occurred over a year later.  The second matter relied on to ask the court to imply the implied term is also unsustainable.

28. I would observe that in Yau Chin Kwan it was held, inter alia, that the agreement was perfectly workable without the implied terms that the purchasers in that case were seeking to imply.  It was held that there was no implied term that the vendor was obliged to:

(a)  inform the purchasers of the state of completion within the 28 days allowed by the purchasers to rescind the agreement under clauses 4(4)(a) and (b) of the sale and purchase agreement; and

(b) provide timely information on the development’s progress to enable the purchasers to exercise their right of rescission.

29. It was also held that it could not be said that the parties would have agreed at the signing of the sale and purchase agreement that the implied terms “went without saying”.

30. In Liu Chung Fai it was held that the purchaser’s claim on the implied term was bound to fail.  It was held that there was no implied term that the vendor shall answer the purchaser’s questions concerning the completion of the development.

31. As Le Pichon JA said at paragraph 16 of her judgment:

“  On any sale and purchase of land, the vendor must give adequate and satisfactory answers to requisitions properly raised.  But requisitions within this obligation are confined to requisitions on title.  For this reason, the word ‘questions’ would not have enlarged the scope of ‘requisitions’ that fell within that obligation.  Rather, those words are used synonymously.”

32. I would also refer to what Rogers VP said in Yau Chin Kwan at paragraph 18 of his judgment:

“  … It would be stretching reality to consider that the defendant would have agreed that it went without saying that it was committed to informing the plaintiffs of its view of the state of readiness of the Development, when that would be a matter of judgment and thus open to query and challenge.”

33. By clause 4(5)(a) of the agreement the defendant was entitled to such extensions of time for completion of the development as shall be granted by the Authorized Person “and appear to him to be reasonable” having regard to delays caused by, inter alia, inclement weather as defined in clause 4(5)(a)(iv).  What would appear to him to be reasonable would be a matter of judgment for the Authorized Person and thus open to query and challenge.  It seems to me that it would be stretching reality to suggest that it went without saying that the defendant would have agreed to the implied term.

34. It has been held by Chung J in Tsang Man Chung at paragraph 29 of his decision that in the context of an agreement under the Consent Scheme, the only proper bases for challenging the Authorized Person’s certificate granting the extension of time are:

(a)  the extension was not given by the person authorized to do so under the agreement;

(b) the person authorized to extend the time under the agreement did not do so in good faith; and

(c) such person did not purport to exercise the power conferred on him by the agreement to extend time.

I respectfully agree.

35. Tsang Man Chung was followed by Deputy Judge Muttrie in Concord Property Development Ltd.

36. There is no dispute that the certificate was issued by Daniel Lin Hsien Wen, the Authorized Person under the agreement.  Mr Haddon-Cave confirmed that the plaintiff was not suggesting that the Authorized Person did not issue the certificate in good faith or that he did not purport to exercise the power conferred on him by the agreement to extend time.

37. Paragraph 14 of the amendments pleads the plaintiff relied on the representation in the certificate and induced thereby the plaintiff did not exercise its right of rescission under clause 4(4)(a) of the agreement immediately after the passing of the unextended deadline for completion of the development of 31 August 2007.  And by paragraph 18 of the amendments and the amended prayer for relief the plaintiff seeks to terminate the agreement with effect from 31 August 2007.

38. However, as Chung J observed in Tsang Man Chung at paragraph 28 of his decision:

“  Even if Extension of time was invalid, this cannot advance the plaintiff’s case that the 28-day limit for giving a notice to rescind should be extended to a reasonable time after the plaintiff discovered the facts.  This is because the consequence of an invalid extension of time can at most be to estop the defendant from asserting that time for completion should be extended.  The plaintiff would still have to give a notice to rescind within the 28 days provided for in clause 4(4)(b).  Whether the plaintiff is aware of the existence of his right is irrelevant.”

39. I would also refer to the passage of the Court of Appeal’s judgment in Kar Ho Development Co. Ltd v Axis Investment Ltd [2001] 1 HKC 86 cited by Chung J at paragraph 26 of his decision in Tsang Man Chung:

“ [The defendant] argued that as issue was being taken on the validity of the certificate [of time extension] it was still possible at trial that a substantial part of the delay claimed [by the plaintiff] would be disallowed and that while this possibility continued to obtain the defendant should not be required to exercise the option to rescind the contract.  [The plaintiff’s] answer to this was that this contention amounted to a red herring.  If the extension of time was disallowed the time for the defendant to exercise this option would already have expired.  I do not see any answer to this” (at p. 92D-F, per Mayo, VP);

40. It seems to me that even if the extension of time beyond 31 August 2007 was disallowed that does not assist the plaintiff in seeking to terminate the agreement with effect from 31 August 2007.  Clause 4(4)(b) of the agreement clearly provides that if the plaintiff does not rescind the agreement under clause 4(4)(a) within 28 days from 31 August 2007 she shall be deemed, without prejudice to her rights under clause 4(4)(c), to have elected to wait for completion of the development.  The plaintiff has not given a notice to rescind within the 28 days provided for in clause 4(4)(b) and she is deemed, without prejudice to her rights under clause 4(4)(c), to have elected to wait for completion of the development.

41. The plaintiff further pleads at paragraph 16 of the amendments that the Authorized Person was employed by the defendant “to issue certificates for extension of time under clause 4(5)(a) of the Agreement and owed the Plaintiff a duty to ensure that such were correct”.  This amounts to a plea that the defendant owed the plaintiff a duty of care to ensure that the certificate was correct because its employee issued the certificate and the defendant is vicariously liable for the acts of the employee.

42. Clause 4(5)(a) of the agreement provides that the defendant was entitled to such extensions of time as granted by the Authorized Person.  It cannot realistically be suggested that the vendor under the agreement was entitled to extensions of time granted by its own employee.

43. The Authorized Person is defined in clause 1(1)(a) of the agreement as follows:

“ ‘Authorized Person’ means Mr. Daniel Lin Hsien Wen of Messrs. A & T Design International Ltd. and this expression shall include any other authorized person or persons as defined in Section 2(1) of the Buildings Ordinance for the time being appointed by the Vendor in his place.”

44. It is clear that the Authorized Person has got statutory duties under the Buildings Ordinance Cap. 123. 

45. In my view, the Authorized Person was not a servant or employee of the defendant when he issued certificates of extension.

46. Deputy Judge Muttrie correctly analysed the Authorized Person’s position in agreements under the Consent Scheme when he said at paragraph 23 of his judgment in Concord Property Development:

“    I do not see that there is anything in the point that the AP is not impartial.  Of course he is employed by the developer, but he is named in the Agreement and the parties are bound by his certificate.  In Tsang Man Chung v. Kar Ho Development Co. Ltd,HCA 84534 of 1999, Chung J summarised the bases for challenging an extension of time as that the extension was not given by the person authorised to give it; or that the authorised person gave the extension in bad faith; or that he did not purport to exercise the power conferred on him to extend time.  So far as I can see there is no basis to challenge the AP’s certificate of extension here.”

47. To suggest that the Authorized Person was not exercising his independent judgment in granting the certificate but was issuing the same as a servant or employee of the defendant is, in my view, unsustainable.  In his reply submissions Mr Haddon-Cave did not pursue the pleaded case at paragraph 16 of the amendments that the Authorized Person issued the certificate as employee of the defendant.  He accepted that the Authorized Person’s role in issuing the certificate was as an independent professional.

48. It seems to me that the new cause of action added by the amendments is unsustainable and is liable to be struck out.

49. For the above reasons, I dismissed the application to amend.  I also ordered that the plaintiff do pay the defendant the costs of the application as it seemed to me that costs should follow the event.