XCHRX YAU CHIN KWAN AND ANOTHER v. TIN SHUI WAI DEVELOPMENT LTD.

HCA 11520/1999

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 11520 OF 1999

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R U L I N G

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1. This is an application under O. 18 r. 19 of the Rules of the High Court that the Statement of Claim be struck out and the action be dismissed or alternatively that all proceedings be stayed.

2. The Plaintiffs' claim arises from an Agreement of 18 June 1997 ("the Agreement") between themselves and the Defendant for the sale and purchase of a flat at Maywood Court, Tin Shui Wai. The Defendant was the developer and at the time of the Agreement the flat and the development were still not completed. At that time the property market was at its height. The agreed purchase price was approximately $4.3 million for a flat of less than 700 square feet.

The grant

3. Two years previously, in May 1995 the Defendant, as developer, had obtained a grant of 7 lots of land in Tin Shui Wai. Under the terms of the grant the Defendant was obliged to erect and complete its development on the land before 31 December 2003. The 7 lots were to be developed in stages by the erection of buildings and appurtenances to be known collectively as Kingswood Villas. On one lot, namely Lot 6, was to be erected the buildings and appurtenances known as Maywood Court.

4. Under the terms of the grant the Defendant was not permitted to dispose of the lot or any part thereof or enter into any agreement to do so until the conditions of grant had been complied with to the satisfaction of the Director of Lands. Clause 16(b) of the conditions of grant provided certain exceptions. Clause 16(b)(ii) enabled the Defendant to enter into Agreements for the sale and purchase of undivided shares in the lots "upon obtaining the prior written consent of the Registrar General (Lands Officer) and subject to such terms and condition ... as he may see fit." Clause 16(b)(iv) enabled the Defendant to dispose of any part or parts of the lot upon the same terms provided that ultimate responsibility for the development or such parts should rest with the Defendant.

5. In March 1997, the Defendant obtained the requisite consent to enter into agreements for sale and purchase of the residential units in Maywood Court.

6. Pursuant to that consent the Defendant entered into the agreement with the Plaintiff to which I have referred.

The Agreement

7. Clause 4(1)(c) of the Agreement stipulated a contractual date for completion of the development of 31 December 1997 which might be extended by the Authorised Person. It was provided that the completion of the development must be "in all respects in compliance with the conditions of the government grant and the building plans". The "development" was defined in Clause 1 as being "the residential units and carparking spaces now being constructed or to be constructed on the land in accordance with the building plans and intended to be known as Blocks 1, 2, 3, 4, 5, 6, 7 and 8 of Maywood Court of Kingswood Villas".

8. By virtue of Clauses 4(4)(a) and (b) of the contract it was provided that if the Defendant failed to complete the development by the date set out in Clause 4(1)(c), the Plaintiffs had a right to rescind by notice in writing to the Defendant. If they did not rescind within 28 days from the contractual deadline they would be deemed to have elected to wait for the completion of the development.

9. Clause 4(5)(b) provided that the Defendant was bound to notify the Plaintiffs in writing within 14 days of any contractually permitted extension of time granted by the Authorised Person on the contractual deadline of 31 December 1997.

10. It was further provided that if the Defendant should fail to complete the development within 6 months of 31 December 1997 (or such date as extended by the Authorised Person) the Plaintiffs had an option either to rescind the Agreement or wait for completion of the development (Clause 4(4)(c)).

11. Completion of the sale and purchase should take place upon the issue of the Certificate of Compliance or consent of the Director of Lands to assign whichever should happen first.

12. By virtue of Clause 4(7) the issue of a Certificate of Compliance or Consent to Assign by the Director of Lands should be conclusive evidence that the development had been completed or is deemed to be completed.

The history

13. On 22 December 1997 (9 days before the contractual date for completion of the development) the Authorised Person certified that the Development was completed in accordance with the condition of grant "insofar as they relate to the development and the building plans in respect of the development". The same day an occupation permit was issued. The following day, 23 December 1997, the Defendant's solicitors applied to the Director of Lands for Consent to Assign.

14. On 28 January 1998, the 28 day deadline for the Plaintiffs to rescind under Clause 4(4)(b) if the development was not completed by 31 December 1997, expired. They were therefore deemed to have elected to wait for completion of the development. They would not have another option to rescind on the grounds of non-completion of the development until 30 June 1998 (i.e. 6 months after 31 December 1997).

15. On 4 June 1998, the Defendant gave an undertaking to government in respect of the completion of certain "works" on the lot and provided a bank bond to support it. The works were described as "minor external finishing works, minor landscaping works and minor internal finishing works at the common areas of the lot".

16. On 17 June 1998 (i.e. 13 days before the Plaintiffs' option to rescind under 4(4)(c) arose) the Director of Lands gave his Consent to Assign in respect of residential units in Maywood Court.

17. On 26 June 1998 the Plaintiffs sent a letter purporting to rescind the contract on the ground that they may have been misrepresented as to their rights to choose the units they really wanted to purchase. This purported rescission has not been relied upon by the Plaintiffs and indeed it is inconsistent with their solicitors' subsequent attempts to raise purported requisitions.

18. On 27th June 1998 the Defendants, through their solicitors Messrs Stikeman Elliott, called on the Plaintiffs to complete within 14 days pursuant to Clauses 5(1) and 5(2) of the Agreement.

19. The 14 days expired on 11 July but the Plaintiffs did not complete.

20. On 7 August 1998 Messrs Hobson & Ma, the Defendant's new solicitors, gave the Plaintiffs final notice to complete within 28 days pursuant to Clause 16(1) of the Agreement.

21. The same day (7 August) the Plaintiffs' new solicitors, Wong and Partners, raised purported "requisitions". On 19 August the Defendant's solicitors responded to this letter denying that the purported requisitions were valid and forwarded a letter from the Director of Lands which stated that Consent to Sell and Consent to Assign would not be withdrawn where sale and purchase agreements had been signed.

22. Despite the 28 days notice to complete given on 7 August 1998, the Plaintiffs failed to complete.

23. On 22 September 1998, the Defendant's solicitors gave notice to the Plaintiffs to determine the Agreement.

24. Six months later, despite this letter from the Defendant's solicitors determining the Agreement, the Plaintiffs' solicitors wrote a letter dated 1 April 1999 purporting to rescind the Agreement by reason of the Defendants failure to complete in time.

25. No extension of time had ever been granted by the Authorised Person extending the time for completion of the development.

26. The Plaintiffs had paid a deposit of $431,300.00 and two further part payments each in the same sum (i.e. a total of $1,293,000.00).

The Issues

27. The Plaintiffs' case is principally founded on the contention that the development was not completed on 31 December 1997 (the contractually agreed date under Clause 4(1)(c) of the Agreement) or indeed on 17 June 1998 (the date the Director of Lands gave his consent to assign) or 30 June 1998 (the date the further right to rescind under Clause 4(4)(c) arose).

28. The Defendant denies this allegation (see paragraph 27 of the Defence) but maintains that even if it had failed to complete the development (as defined in Clause 1(f) of the Agreement) by these dates the Plaintiffs still have no cause for complaint by virtue of the following terms of the Agreement:

29. By virtue of Clauses 4(4)(a) and (b) of the Agreement the Plaintiffs had a right to rescind within 28 days of 31 December 1997 if the development was not completed by that date. They did not do so and therefore they were "deemed to have elected to wait for the completion of the development" (subject to a further right to rescind under Section 4(4)(c) arising after 30 June 1998).

30. Insofar as it may have failed to complete the development thereafter the Defendant relies on the terms of Clause 4(7) of the Agreement which is in the following terms:

" (7) For the purpose of this clause the issue of a Certificate of Compliance or Consent to Assign by the Director of Lands shall be conclusive evidence that the Development has been completed or is deemed to be completed as the case may be and nothing in this sub-clause shall preclude the Vendor from proving that it has complied with sub-clause (1)(c) above by any other means."

31. Accordingly the issuance of the Consent to Assign by the Director of Lands on 17 June 1998 provided conclusive evidence that the development was completed or was deemed to be completed whether or not it actually had been completed.

32. The Plaintiffs' Statement of Claim seeks certain declarations (including a declaration that the Defendant had failed to complete the development by 31 December 1997 or indeed by 30 June 1998) return of the $1,293,000.00 paid to the Defendant and damages. The issues raised by the Plaintiffs in their Statement of Claim would, if decided in the Plaintiffs' favour, provide an answer to the contentions of the Defendant to which I have referred. Whether these issues are arguable has been the subject matter of this application to strike out.

33. It is well established that it is only in "plain and obvious" cases that the court should exercise its power to strike out pleadings under O. 18 r. 19. The Plaintiffs' claim must therefore be obviously unsustainable before the court will order it to be struck out. However, the fact that issues are difficult or complicated does not preclude the court from striking out pleadings if it is satisfied that it has all the necessary information to enable it to decide the question of interpretation and if it is satisfied after full argument in the face of all the relevant information that the case is plainly and obviously one for striking out (see Clough J in Byjoy Ltd v. Thorogood Estates Ltd [1985] 2 HKC 746 at 758). This is a case in which the issues are of some complexity and which necessitated lengthy submissions.

34. There are two issues in particular which form the principal basis of the Plaintiffs' case and which have concerned the court during this application.

35. Firstly, it is alleged that a term should be implied into the Agreement in order to give its business efficacy in the following terms:

"(1) to inform the Plaintiffs (a) within a reasonable time after 31 December 1997, or (b) prior to the expiry of 28 days after such date, or (c) prior to or at the time of the notice for the completion of the sale and purchase of the Property:-

(a) whether the Development had been completed in accordance with Clause 4(1)(c) on or before 31 December 1997; or

(b) in the event that the Development had not been completed in accordance with Clause 4(1)(C) by 31 December 1997, the fact that it had not been so completed;

(2) to provide timely information, material or evidence to the Plaintiffs concerning the progress of the Development to enable the Plaintiffs to exercise its rights of rescission as aforesaid; and/or

(3) to answer the Plaintiffs' questions or requisitions concerning whether the Development had in fact been completed in accordance with clause 4(1)(c) on or before 31 December 1997."

See Clause 24 of the Statement of Claim.

36. It is alleged that the defendant failed to comply with this implied term (Clause 31 of the Statement of Claim). By not complying with this term the plaintiff had been misled by the defendant into not rescinding the Agreement under Clause 4(4)(a) which they would have done if they had known the true position (Clause 39 of Statement of Claim).

37. Secondly, an allegation by the Plaintiffs that the Consent to Assign given by the Director of Lands on 17 June 1998, having been given before the completion of the development and in return for an undertaking supported by a bank bond, was not a Consent to Assign contemplated by the Agreement and in particular by Clause 4(7).

The Implied Term

38. I propose first to deal with the Plaintiffs' contention of an implied term since if the existence of the implied term suggested by the Plaintiffs is arguable, then clearly the issue of whether the development was in fact completed by 31 December 1997 (which would involve consideration of whether such works as were outstanding fell within the definition of "development" in Clause 1) should be tried.

39. Counsel are in agreement as to the test which a court must apply before it will imply a term into a contract. A term will be implied if it is necessary in the business sense to give efficacy to the contract. A term will only be implied when "without it the contract will not work" (see Chitty on Contract 28th edition paragraph 13-005).

40. In BP Refinery (Westernport) Pty Ltd v. President and Councillors and Ratepayers of Shire of Hastings (1978) 52 ALJR 20 (PC) Lord Simon of Glaisdale summarised the law in this way:

" Their Lordships do not think it necessary to review exhaustively the authorities on the implication of a term in a contract which the parties have not thought fit to express. In their view, for a term to be implied, the following conditions (which may overlap) must be satisfied: (1) it must be reasonable and equitable; (2) it must be necessary to give business efficacy to the contract, so that no term will be implied if the contract is effective without it; (3) it must be so obvious that "it goes without saying"; (4) it must be capable of clear expression; (5) it must not contradict any express term of the contract."

41. Counsel have cited a number of other passages in judgment where judges have propounded the appropriate test. Essentially they do not differ but are of assistance in drawing the attention of the court to different aspects of the test. In Trollope v. Northwest Metropolitan Regional Hospital Board [1973] 1 WLR 601 at 609 Lord Pearson emphasised that it is not for the court to make a contract for the parties:

" The court will not even improve the contract which the parties have made for themselves, however desirable the improvement might be. The court's function is to interpret and apply the contract which the parties have made for themselves. If the express terms are perfectly clear and free from ambiguity, there is no choice to be made between different possible meanings: the clear terms must be applied even if the court thinks some other terms would have been more suitable. An unexpressed term can be implied if and only if the court finds that the parties must have intended that term to form part of their contract: it is not enough for the court to find that such a term would have been adopted by the parties as reasonable men if it had been suggested to them: it must have been a term that went without saying, a term necessary to give business efficacy to the contract, a term which, though tacit, formed part of the contract which the parties made for themselves."

42. By implying a term the court is in fact giving effect to the intention of the parties as Scrutton LJ said in Reigate v. Union Manufacturing Co. (Ramsbottom) Ltd [1918] 1 KB 592, 605:

"A term can only be implied if it is necessary in the business sense to give efficacy to the contract; that is, if it is such a term that it can confidently be said that it at the time the contract was being negotiated some one had said to the parties, 'What will happen in such a case,' they would both have replied, ' Of course, so and so will happen; we did not trouble to say that; it is too clear.' Unless the court comes to some such conclusion as that, it ought not to imply a term which the parties themselves have not expressed."

43. Other judges have propounded the test in accordance with the views of an officious bystander.

44. I have borne in mind that the matrix of facts is highly relevant to the implication of terms (see B P Refinery v. Shire of Hastings (1978) 52 ALJR 20 PC) and the court should not strike out pleadings unless it is satisfied that it is in possession of the full background.

45. The courts in appropriate cases have been prepared to strike out allegations of an implied term if satisfied that they are in possession of the material facts and that the allegation of the implied term is unsustainable (see e.g. Wong Kwok Chiang v. Longo Construction Ltd [1986] HKC 362, Barclays Bank plc v. Taylor [1989] 1 WLR 1066, Europhone International Ltd v Frontel Communications Ltd [2001] STC 1399, W v. Essex County Council [1997] 2 FLR 535 (Hooper J), [1999] Fam 90 (Court of Appeal)).

46. Insofar as the factual matrix is concerned the court can and must assume in the Plaintiffs' favour the factual assertion of the Plaintiffs. It must however always bear in mind that the factual matrix refers to the background knowledge reasonably available to the parties at the time the Agreement was made (Investors Compensation Scheme v. West Bromwich Building Society [1998] 1 WLR 896 per Lord Hoffman at 912).

47. Having heard counsel's submissions, I am satisfied that I have been provided with the full factual matrix for the purpose of deciding whether the implied term suggested by the Plaintiffs is arguable.

48. Mr Yu for the Defendant has argued that the terms of the Agreement which incorporate standard terms under the Consent Scheme for the protection of purchasers, provides a complete and workable scheme. He points out that there are express provisions in the Agreement requiring the vendor to notify the purchaser of certain matters (e.g. Clause 4(5)(b): notification of extension the time granted by Authorised Person; Clause 5(1): notification that purchaser is in a position validly to assign the property). The fact that these express provisions had been made suggests he argues that the Agreement had specified the matters upon which the Defendant was obliged to notify the purchaser. Although the Defendant as developer would be in the best position to know the state of the development, the Government would also know whether the development had been completed. A purchaser could always request information from the developer, its solicitor or the Government or indeed, in the absence of such information, serve notice of recission. He contends on the authority of Woodar Investment Development Ltd v. Wimpey Construction UK Ltd [1980] 1 WLR 277 that a purchaser who sought to rescind on the mistaken belief that the development was not completed would not be prejudiced thereby.

49. Mr Fung for the Plaintiffs relies inter alia upon the fact that the progress of the development is a matter peculiarly within the knowledge of the developer and the interest of a developer who has not completed in concealing that fact from a purchaser in a falling market. He also claims that the developer had held out a financial incentive to the purchaser to use the same firm of solicitors thus creating an inherent risk of conflict of interest between the Plaintiffs and the Defendant which he says can be ameliorated or avoided by making it necessary for the developer to provide the information for which he contends. He points out that the developer may fail to provide the information if asked and the Government may be equally unhelpful. He argues that the ratio of Woodar v. Wimpey is not as wide as Mr Yu suggests and it is at most authority for the proposition that a genuine dispute as to the construction of contractual provisions thereby giving rise to one party expressing an intention to implement the contract only in accordance with his own erroneous interpretation may not amount to repudiatory breach. He also argues that the case is peculiar to its own facts.

50. It can be seen from paragraph 24 of the Statement of Claim that the implied term for which the Plaintiff argues has two elements:

(1) under Clauses 24(1) and (2) for the developer to provide information even if not asked for such information and/or;

(2) under Clause 24(3) to answer purchasers' questions if asked.

51. Bearing in mind the restriction on powers of the court to imply a contractual term and the principles to which I have referred, I find it unarguable that there should be an implied term requiring the Defendant to provide information even if not asked; not least because the alternative term suggested by the Plaintiffs (i.e. to answer questions) would itself render the contract workable. Nothing has been said by Mr Fung which would suggest that the argument would not be workable by, for instance implying a term that the Defendant honestly answers the Plaintiffs' questions.

52. This case is quite different from that in Stag Line Ltd v. Tyne Shiprepair Group Ltd ("The Zinnia") [1984] 2 Lloyds Law Reports 211 where the court felt that on the particular facts of that case, which involved potential danger to life, it was necessary for the court to imply a term that the contractor who had broken his contract should notify the other party.

53. I am unable to see why the fact that the same firm of solicitors might be acting for both parties should render such a term necessary. If the common solicitor found that the interests of his two clients conflicted, such as might occur if the developer refused to supply information which might give grounds for the purchaser to rescind, the solicitor should decline to act for either party.

54. It is not in my view arguable that if an officious bystander or the parties themselves had been asked at the time of the making of that contract that they would inevitably have answered that the developer should automatically provide such information.

55. Insofar as the more limited aspect of the term is concerned, namely to provide information if asked, I find that it is at least arguable that such a term should be implied if the purchaser's right to rescind is to be meaningful. The determination of the question may well turn upon evidence of the ability of the purchaser to obtain the information from other sources should the developer refuse to supply it. I would add that on the arguments I have heard I do not personally find attractive the Defendant's suggestion that a purchaser should have to purport to rescind in ignorance of the true state of completion of development, even if Mr Yu's submission as to the effect of Woodar v. Wimpey are correct.

56. Even if this more limited implied term should be implied it would not assist the Plaintiffs in this case. There is no suggestion that the Plaintiffs asked any question or raised any requisition with the Defendant within 28 days of 31 December 1997. The Plaintiffs had no further right to rescind until 30 June 1998 by which time the Director of Lands had issued his Consent to Assign which if the Defendant's argument is correct precluded by virtue of Clause 4(7) any right to recission on the part of the Plaintiff on the ground of non-completion of the development. Even if the implied term for which the Plaintiff argues is directed to the Defendant's alleged failure to answer the Plaintiff requisition in August 1998, the Plaintiff never purported to rescind the agreement prior to the Defendant's determination of the agreement on 22 September 1998.

57. In the circumstances the Plaintiffs' allegation that a term or terms should be implied into the Agreement should be struck out.

The Consent to Assign

58. The second issue is whether the document headed Consent to Assign issued by the Lands Department and dated 17 June 1998 was a Consent to Assign contemplated and required by Clause 4(7) of the Agreement.

59. The Plaintiffs sought to define its case regarding the Consent to Assign in a letter from its solicitors dated 18 July 2001. The arguments are set out as follows:

"(1) the consent contemplated and required by clause 4(7) is an unconditional and unqualified consent, i.e. one that is based upon and follows completion of the construction of the development and Maywood Court in accordance with the building plans and the Conditions of the Government Grant; the consent dated 17th June 1998 is not such a consent in that it was granted to the Defendant in exchange for, following and on condition that the Defendant give an undertaking supported by a bank bond to complete certain works (including work at Maywood Court, the residential blocks, flats and facilities thereof) set out in the said undertaking, and to indemnify the government against all liabilities arising out of the failure to complete those works and any carrying out of the works by the government.

(2) the consent contemplated and required by clause 4(7) is one that has been issued in accordance with and following observance of the scheme in clause 4 of the said Agreement including clause 4(6) thereof; that clause 4(6) was not followed in that the application for Consent to Assign dated 23rd December 1997 by the Defendant's project solicitors Messrs Woo, Kwan, Lee & Lo was not made after and within 14 days of the Defendant's having completed the development in all respects in that the development was not completed on or by 30th December 1997.

(3) the consent dated 17th June 1997 was issued in response to the application for Consent to Assign dated 23rd December 1997 which application was based upon a misrepresentation namely the false representation that the development and Maywood Court had been completed by 23rd December 1997, which representation is implicit from the fact that Consent to Assign was applied for on 23rd December 1997, from the contents of that application and from the contents and scheme of clause 4 of the said Agreement."

60. Mr Fung for the Plaintiffs has referred to this document as "voluntary particulars". Mr Yu, with some justification, has said that they cannot be so regarded as they and in particular sub-clause (3) are not particulars of existing averment in the pleadings but purport to add a further averment to the Plaintiffs' case. I shall nonetheless deal with them.

61. The Conditions of Grant to the Defendant must in my view be relevant to the question of the Consent to Assign contemplated by the parties in Clause 4(7)of the Agreement as the title that the Defendant will give to the Plaintiffs must be derived from the Conditions of Grant. The title of the Plaintiff will be dependent on the issuance by the Director of Lands of either a Certificate of Compliance or a Consent to Assign.

62. Clause 16(a)(iii) of the Special Conditions provides that, subject to sub-clause (b), the Defendant could not assign the property or any part of it or enter into any Agreement to do so until inter alia the Conditions of Grant (which includes completion of the development) have been complied with to the satisfaction of the Director of Lands and Registrar General (Land Officer). This must be the Certificate of Completion to which the Agreement refers (see Clause 1(1)(c) of the Agreement).

63. Clause 16(b) provides exceptions to the general rule in Clause 16(a)(iii). It inter alia allows the Defendant before the conditions of the grant have been complied with (a) to enter into Agreements for the sale and purchase of parts of the development (Clause 16(b)(ii)) and (b) to dispose of any or part of the development Clause 16(b)(iv), in each case "upon obtaining the prior written consent of the Registrar General (Land Officer)" and "subject to such terms and conditions including the payment of fees as he may see fit".

64. It is clear that this latter consent must be the Consent to Assign referred to in Clause 4(7) of the Agreement. It plainly follows from a proper construction of Clause 16 of the Special Conditions that a Consent to Assign may be granted when the Defendant has not fully complied with the terms and conditions of the Special Conditions.

65. The parties to the Agreement must have contemplated that the Consent to Assign to which they were referring was capable of being granted in circumstances when the Defendant had not satisfied the Director of Lands that all the conditions of the grant had been complied with and that the Consent to Assign might be granted upon such terms and conditions as the Director of Lands saw fit. Indeed the fact that a Consent to Assign was issued rather than a Certificate of Compliance would inevitably suggest that the Conditions of Grant had not been fully complied with. That is exactly what the Deputy Director of Lands said in his letter of 16 April 1999 to the Plaintiffs' solicitors:

"It is apparent from the fact that a Consent to Assign was issued instead of a Certificate of Compliance that certain conditions had at the time not yet been complied with. Notwithstanding the outstanding works the fact is that a Consent to Assign has been issued and the vendor was entitled to give notice to complete the sale and purchase without the need for the issue of a full certificate of compliance."

66. I note there is nothing in the Consent to Assign of 17 June 1998 (which is before the court) to suggest that it was conditional.

67. The Plaintiffs argue further that the Consent to Assign was invalid because it was obtained in breach of Clause 4(6) which provides that "the vendor shall apply in writing for a Certificate of Compliance or the consent of the Director of Lands to assign in respect of the Development within 14 days of his having completed the development as stipulated in sub-clause (1)(c) above". We know the application for Consent to Assign was dated 23 December 1997. The Plaintiffs' case (which appears to have some force in view of the Defendant's undertaking, subject to argument as to the meaning of "development") is that the development could not have been completed within 14 days prior to 23 December 1997. In other words the Plaintiffs are saying that the Plaintiffs' breach of Clause 4(6) taints the Consent to Assign.

68. I am satisfied that such an argument is bound to be rejected.

69. The whole purpose of having a "conclusive evidence" clause such as S. 4(7) is to prevent the parties going behind it and seeking to argue over whether the development was or was not completed and consequently whether the vendor can pass good title. Otherwise there would be absolutely no point in having the clause. The point is obvious. It is referred to in the LACO Circular 7C of 16 January 1995 to conveyancing solicitors "... in order to provide a final cut-off point beyond which there can be no dispute, the issue of the Certificate of Compliance or Consent to Assign shall be conclusive (but not the only) evidence in respect of Clause 4(1)(c) and generally for the other requirements of Clause 4". If in every case where a Consent to Assign had been granted, one had to ask the question whether the development had in fact been completed at the time when the Consent to Assign was applied for this would wholly destroy the effect and purpose of Clause 4(7). As Mr Yu pointed out, to construe Clause 4 in this way would lead to the absurd result that every single purchaser would be entitled to require the Defendant to establish that the development had in fact been completed in all respects before he could be required to complete the purchase.

70. As for the argument not raised in the pleadings but in the so called "voluntary particulars" that the Consent to Assign was based on a misrepresentation that the development had been completed, that cannot have any substance. The application is before the court and states no more than that an occupation permit had been issued, which was a fact. Furthermore it appears to be fanciful to try to import into the application made by the developer to the government, the terms of Clause 4(6) of the Agreement between the developer and a purchaser. What is even more significant is however that there can be no possible argument that the Director of Lands acted on any misrepresentation even if one was made as to the state of completion because he insisted on the developer's undertaking and the bank bond in support.

71. I find therefore that the argument that the Consent to Assign on 17 June 1998 was not that contemplated by Clause 4(7) is bound to fail.

Misrepresentation

72. It follows from my ruling that the Consent to Assign of 17 June 1998 was that contemplated by S. 4(7) that other allegations of misrepresentation in the Statement of Claim (paragraphs 29(8), 34 and 39) are unarguable. It cannot in particular be said that a failure to refer to the undertaking and bond constituted a misrepresentation if the Plaintiffs never raised questions about such matters.

Failure to answer requisitions

73. Mr Fung expressly conceded during argument that the Plaintiffs' case on the failure to answer requisitions did not raise any additional issue but was based upon the validity of the Consent to Assign. Since I have decided that issue in favour of the Defendant I do not propose to deal with it further beyond commenting that the Plaintiffs have never purported to rescind on this ground.

Defective title

74. The Plaintiffs have not pleaded that there was a latent defect in title because individual owners might be called upon to contribute to the cost of work required pursuant to the undertaking given by the Defendant to the Director of Lands but this argument was raised in argument by Mr Fung. Despite the fact that it was not raised in the pleading I propose to deal with it. Mr Fung's argument was based upon the case of Chi Kit Co. Ltd v. Lucky Health International Enterprise Ltd [2000] 3 HKC 143. In that case a judgment of $25.7 million had been entered against the incorporated owners of a building which under the terms of S. 17(1)(b) of the Buildings Management Ordinance Cap. 334 could with leave of the court be enforced against the incorporated owners or "against any owner". The court in that case found that the reference to owner in the Ordinance was the owner for the time being and his successors in title. The court found that such a liability was of such magnitude as to be wholly outside the contemplation of a reasonable purchaser and such as to effect the title of the property.

75. In the present case it is clear that the undertaking of 4 June 1998 which was before the court was a personal undertaking of the Defendant to the Government. It could not itself impose any liability on the assignees of the property. The Defendant did however by Clause 11 agree that the undertaking without prejudice to the government rights against it or its successor and assigns under the conditions.

76. I am satisfied that it is not arguable that this situation created a defect in title.

77. Mr Yu argues that as a matter of law the burden of a positive covenant by the Defendant could not bind its assigns unless the covenant fell within the terms of S. 41(2) of the Conveyancing and Property Ordinance Cap. 219. He contends that a covenant to develop could not fall within that subsection as it was not expressed nor could it have been intended to run with the land (S. 42(2)(b)) nor was it expressed or could it be said to benefit the land of the covenantee (the Government) S. 41(2)(c).

78. I have no reason to suppose that these arguments of Mr Yu are incorrect but even if the matter was arguable, I am satisfied that it is not arguable in this case that these matters would amount to a defect in title.

79. Mr Merry, for the Plaintiff, concedes that the government would only look to an individual purchaser for his proportionate share of the remaining works covered by the undertaking. Given the size of the Plaintiffs' interest (17 equal undivided 41,020th parts or shares) any liability of the Plaintiffs would bear no comparison with the potential liability of the purchaser in Chi Kit's case ($25.7 million which could be enforced against an individual owner) which the court found to be of such magnitude as to be wholly outside the contemplation of a reasonable purchaser.

80. In any event, the completion of the works was guaranteed by the personal undertaking of the Defendant with a bank bond for $55 million, both of which must have been approved by the government. There has been no suggestion in correspondence or in pleading that such security was or might be inadequate to cover the cost of the remaining works.

81. Furthermore there is no suggestion that the government would, or indeed ever has, looked to individual purchasers of such a development to contribute to the cost of the development. While LACO has recently decided that undertaking should in future be registered one must always look at the facts of a particular case to decide whether there was any defect in title.

82. The government in this case expressly stated in a letter dated 12 August 1998 from LACO that it will not withdraw the consent to sell or Consent to Assign in this case.

83. I am satisfied that it is not arguable that there was a defect in title in this case.

84. The Plaintiffs had in any event never sought rescission on the grounds of defect in title.

Damages for breach of contract

85. There is, however, in my view, one issue which is available to the Plaintiff on his Statement of Claim whether or not it was originally intended and which is arguable and that is a claim for damages for alleged non-completion of the development on or before 31 December 1997. The Agreement is pleaded in paragraph 3 of the Statement of Claim. The breach is alleged in paragraph 33 and in paragraph 52 it is alleged that the Plaintiffs suffered loss and damage. The damage claimed is the agreed amount of interest under Clause 4(4)(b) of the Agreement.

86. It may be reasonable to comment, as Mr Yu did, that if the Plaintiff had intended to make its claim for interest they would have specifically pleaded a claim under Clause 4(4)(b). The court, however, is merely concerned with whether the Plaintiff's claim is arguable on the pleadings as they now stand.

The Judgment of the Court of Appeal relating to Discovery

87. In considering the submissions of counsel, I have not ignored Mr Fung's submissions to me regarding the judgment to the Court of Appeal on 4 July 2001 in these proceedings in relation to discovery. He has pointed out that the Court of Appeal was referred to the case of Martin and the Miles Pen Co. Ltd v Scrib Ltd (1950) 67 RPC 127 and had heard counsel's submissions but nonetheless upheld an order for discovery relating to documents arising after 31 December 1997. He therefore suggests that the Court of Appeal must have concluded that the Plaintiff has an arguable case.

What is important, however, is to bear in mind that in its judgment the Court of Appeal made no ruling as to the arguability of any of the pleas in the Statement of Claim nor did it say that it accepted the proposition that it was necessary for it on an appeal on discovery orders to consider the arguability of any plea. It is significant also that one of the matters advanced by Mr Fung in argument before the Court was that there had been no application to strike out.

88. In the light of my findings I make the following order. Insofar as the Statement of Claim raises issues of

(1) the implied term alleged in paragraph 24;

(2) the validity of the Consent to Assign of 17 June 1998 for the purpose of the Agreement;

(3) misrepresentation;

(4) failure to answer requisitions;

(5) defect in title;

it is struck out.

89. Since the resulting Statement of Claim is likely to assume a significantly different shape in the light of this ruling, I give leave to the Plaintiffs to apply to amend the Statement of Claim within 28 days failing which the Statement of Claim be struck out.

90. I make the following order as to costs which will take effect unless either party applies to be heard on the question of costs within 14 days. I order that the costs of this application save insofar as they relate to the issue of damages for breach of contract for non-completion by 31 December 1997 (the issue which I have found to be arguable) be taxed if not agreed and paid by the Plaintiffs. Insofar as the costs relate to the issues of damages for breach of contract for non-completion by 31 December 1997 the costs be taxed if not agreed and paid by the Defendant.

91. Certificate for two counsel.

92. Plaintiffs' costs to be taxed in accordance with the Legal Aid Regulations.