MARINER INTERNATIONAL HOTELS LTD v. ATLAS LTD

cacv 291/2004

in the high court of the

hong kong special administrative region

court of appeal

civil appeal no. 291 of 2004

(on appeal from HCA NOS. 10714, 10752 AND 10821 of 1998)

AND BETWEEN

(Consolidated by Order of Master Lok dated 10 November 1998)

______________________

J U D G M E N T

______________________

Hon Rogers VP:

1.  This is an appeal from a judgment of Burrell J given on 2 August 2004.  The action before the judge was in respect of an agreement dated 19 December 1996 (“the Agreement”) relating to the sale and purchase of a hotel, which was at the time still to be built, together with the land on which it stood.  The Agreement was structured in the form of the sale and purchase of shares and associated debt but the structure of the Agreement was not the focus of the issues in the case, at least in so far as they survived as part of the appeal.  The judge held that the plaintiff had wrongfully repudiated the Agreement and dismissed the plaintiff’s claim.  He further ordered that the parties were to be at liberty to apply for directions on the further conduct of the proceedings and/or on the assessment of damages suffered by the defendant whether consequent upon agreement between the parties or otherwise.  The judge also ordered that the costs of the trial should be in favour of the defendant.  At the conclusion of the hearing of this appeal judgment was reserved which we now give.

2.  Although there were a total of three actions which were consolidated, the action was, in effect, a claim by Sino Land Company Ltd (“Sino”), which, together with the company which it was using as a vehicle in the transaction, will be referred to as the plaintiff on the one hand and Hang Lung Group Ltd, which together with the company through which it was conducting the transaction, will be referred to as the defendant.

Background

3.  The Hotel was to be built on Tsuen Wan Town Lot No. 356 and ultimately came to be named the Bay Bridge Hotel.  As already noted, the Agreement was structured in the form of a sale and purchase of shares of a company which through its subsidiary would own the land on which the Hotel was to be built.  Nevertheless it had many of the features of a conveyancing contract.  It provided that the vendor should prove good title to the property and that requisitions and objections could be delivered within seven days.  As regards the construction of the Hotel there were a number of provisions the first of which was contained in clause 2.01(b) which read as follows:

“The Vendor having procured the practical completion of the Hotel with furniture, fixtures, fittings and decoration (the Hotel rooms shall be equivalent to the standard and quality of finishes of the Grand Plaza Hotel rooms as renovated in December 1996 and the main lobby of the Hotel shall be equivalent to the standard and quality of finishes of the existing Grand Plaza Hotel main lobby) and having obtained (1) the occupation permit in respect of the Hotel issued by the Building Authority and the Certificate of Compliance and (2) the licence in respect of the Hotel granted by the Office of the Licencing Authority of Home Affairs or the Hotel and Guesthouse Accommodation Authority Department under section 8(2)(a) of the Hotel and Guest House Accommodation Ordinance (or any other equivalent licence permitting the commencement of operation of the Hotel) (“The Hotel Licence”) in order for the Hotel to commence business on or immediately after Completion; and”

4.  It may be noted that Hotel was defined in the Agreement as meaning the Hotel to be constructed in accordance with the Approved Plan on and to form part of the Tsuen Wan Town Lot No. 356.  The Approved Plan was also defined.  It meant the general building plans and specifications for the construction of the Hotel as approved by the Building Authority under BD Reference No. 2-9040-93 as may be amended pursuant to approved amendments.  There was a specific warranty that the Hotel would be constructed in accordance with the Approved Plan.  There was some dispute between the parties as to whether the plaintiffs had received copies of the Approved Plan at the time that the Agreement was entered, but since the Agreement had defined the Approved Plan, it was conceded in argument in this court that nothing turned upon that.  Although, as is apparent from clause 2.01(b), some of the features of the Hotel had to be equivalent to those of the Grand Plaza Hotel, it would seem that any inspection of that latter hotel that had taken place prior to the date of the Agreement had been perfunctory.  It would seem from the correspondence and notes of early inspections that the plaintiff was well aware of what facilities would be provided in accordance with the Approved Plans.

5.  Completion under the Agreement was to take place no later than 30 June 1998 and time was to be of the essence.  The construction of the Hotel proceeded, albeit perhaps not at a pace which might have been contemplated at the commencement.  It became clear, at least as the date of 30 June 1998 approached, that the Hotel would not be completed early.  Concern in this respect was apparently expressed on behalf of the plaintiff as early as June 1997.  The completion of the Hotel nevertheless proceed and in August 1997 the contract for the fitting out works was entered into.  As early as September 1997 the Occupation Permit was issued by the Building Authority. 

6.  It may be noted that what came to be termed the Asian Financial Crisis commenced in October 1997.  The consequent effect on the economy and the property market in Hong Kong, in particular, is a matter of such common knowledge and has featured in cases which have reached this court so often that, in general terms, the phenomenon might be considered to be something of which judicial notice may be taken.  Whether justifiably or not, the defendant was said to have become concerned that the plaintiff might wish not to proceed with the purchase of the Hotel.  Whether in consequence of that or otherwise it would appear that a certain amount of distrust between the parties became evident.  The plaintiff wished to gain access not only to the Hotel but also to the Grand Plaza Hotel to determine whether the Hotel was being completed in a manner which it considered was satisfactory.  Its attempts to gain access were thwarted.  This resulted in part in an order being obtained on 10 June 1998 for the inspection of the Hotel and the Grand Plaza Hotel.

7.  During the course of the ensuing two weeks the plaintiff’s representatives and outside consultants inspected the Hotel.  On 23 June the plaintiff’s solicitors served requisitions on the defendant’s solicitors.  These will be dealt with in the judgment of Le Pichon JA, of which I have had the advantage of reading in draft and with which I agree. 

8.  On the same day the plaintiff’s solicitors wrote to the Building Authority, without copying or otherwise informing the defendant, making complaint that there were a number of unauthorised building works which had been carried out in respect of the Hotel.  It was said that the unauthorised items were not shown on the Approved Plan and they were not subject to exemption under section 41(3) of the Buildings Ordinance.  The letter stated that advice had been received from senior counsel that the Building Authority had a duty to enforce the provisions of the Buildings Ordinance and that there was therefore a real risk of enforcement proceedings being initiated.  The letter sought confirmation that there was a real risk of enforcement proceedings.  In the course of argument, Mr Neville Thomas, QC, who appeared on behalf of the defendant, referred to this as being the torpedo letter.  Pointing both to the impression that the letter would give the reader and the concluding paragraphs of the letter, he submitted that its purpose was clearly to bring an end to the Agreement.  It emerged later, as a result of production of the Building Authority’s files, that a copy of that letter had been delivered personally by Mr Robert Ng, the chairman of Sino, to the Director of the Building Authority on 29 June 1998.  As will emerge, although the letter to the Building Authority identified the same items as the requisitions letter of the same date, the contents were markedly different.

9.  Although the Building Authority had been requested to answer the plaintiff’s letter within three days, that request could, at best, be considered to have been optimistic.  The Building Authority did however mobilise a large team to investigate plaintiff’s complaints and it is to their credit that, having done so, within a very short space of time it was able to give its considered reply that it had concluded that there was no grounds for complaint.

10.  The plaintiff’s solicitors replied to the defendant’s solicitors’ requisitions by letter dated 27 June 1998.  On the same day the architect issued certificates of practical completion for the interior fitting out and the main contracts.  Two days later the plaintiff’s solicitors served a further letter of requisitions, this time accompanied by an extensive 100 page report.  That was served at 5.39 in the evening.  The defendant’s solicitors had previously proposed a completion time for 11 am on the following day, 30 June 1998, but approximately half an hour before then the plaintiff’s solicitors gave notice that the plaintiff accepted the defendant’s repudiation of the Agreement and sought the return of the deposit of some $300 million.  The defendant for its part did not accept that and notice was served accepting termination of the Agreement and forfeiting the deposit.

11.  On 9 July 1998 the defendant’s solicitors wrote to the Building Authority enclosing a letter from the architect together with structural calculations prepared by the Registered Structural Engineers seeking confirmation that the Hotel had no unauthorised building works.  At that stage the defendant was still unaware of the terms of the letter which had been sent by the plaintiff’s solicitors, although in general terms it must have been aware that a complaint had been made because there had been inspections by the Building Authority.  On 17 July 1998 the Building Authority wrote to the defendant’s solicitors informing them that there had been no contravention of the Buildings Ordinance discovered on the inspections which had taken place on 7 and 9 July 1998.

12.  The issues which were raised in the course of the trial were extensive and detailed.  The complaints which were made by the plaintiff extended not only to an allegation of failure to construct the Hotel to the required standard but breach of implied terms.  These allegations, in themselves, were extensive.  The judge was taken through complaints which ranged from the durability of the pile of the carpets to the ceilings not being flat and smooth.  There were then issues relating to the requisitions and as to whether the defendant had good title; there were issues relating to the financial provisions in the Agreement.  Many of those issues are not now before this court.  In my view, it is a fair criticism that if the plaintiff considered that some of its complaints have been overlooked or misunderstood, the cause for that has been in the way the case was presented and conducted with a plethora of issues being raised, many of them without merit or substance eventually having to be dropped.  It suffices to say that the judge found that the defendant had not repudiated the Agreement and that there were no grounds for rescission.  The judge held that the defendant had not been in breach of contract and he was not satisfied that the plaintiff had suffered loss.  In view of the extensive nature of the issues involved, the findings of the judge will be referred to as each of the issues arising on the appeal are considered.

The defendant’s obligations with regard to the construction of the Hotel

13.  Central to the plaintiff’s first argument on the appeal was the proposition that clause 2.01(b) meant that the defendant had to be in a position, at least by 30 June 1998, to hand over a hotel that was absolutely complete to the extent that it was free from any patent defects other than the most trivial.  Mr Sumption QC, who appeared on behalf of the plaintiff on the appeal, repeated on many occasions that it was a matter of law that the term “practical completion” meant that the only defects which could exist in the building were latent or trivial.  In so saying emphatic reliance was placed upon passages in textbooks particularly Hudson’s Building and Engineering Contracts, 11^th ed. (1995), para. 9-043; Keating on Building Contracts, 7^th ed. (2001), para. 18-172 and in passages in the cases cited in those textbooks namely particularly Westminster Corporation v Jarvis Ltd [1970] 1 WLR 637 at 646F-7B; P & M Kaye Ltd v Hosier & Dickinson Ltd [1972] 1 WLR 146 at 164H-165C and H.W. Nevill (Sunblest) Ltd v William Press & Son Ltd [1981] 20 BLR 78 at 87.  It was said that in so far as the judge held at paragraph 44 of the judgment that the term “practical completion” was used in its building contract sense he must have overlooked the proper meaning of that term when he held that was satisfied by procuring the certificates of practical completion in respect of the contract works and in particular the main contract and the fit-out contract.

14.  The first observation I would make is that the judgments cited do not establish that the meaning of the term practical completion is a matter of law, except of course in so far as the construction of every contract can be said to be a matter of law.  In those cases it was a matter of interpretation of the particular contracts.

15.  The second observation I would make is that the way the matter has been put in argument in this court does not seem to have featured either in the pleadings or in the submissions below and attempting to discern it from the notice of appeal presents difficulties.  Rather, the way the matter was put in the court below seems to have been that by reason of the failure on the part of the defendant to procure a hotel with the standard and quality of finishes referred to in clause 2.01(b) and because of the failure to make good title the defendant had failed to procure practical completion of the Hotel: see paragraph 27 of the re-re-re-amended statement of claim.  Indeed, this court was told that none of the textbooks or authorities now relied upon by the plaintiff in relation to the meaning of practical completion was cited to the judge below.

16.  Furthermore, it would seem odd that if it had been the plaintiff’s case that there had been no practical completion because there was at least one patent defect that the trial would have lasted the 65 days which it did.  There would have been no need for many of the issues to be ventilated as to the quality of the workmanship.  The tedious resort to minute discrepancies and technicalities to which the judge was subjected would have been unnecessary.

17.  It is trite that clause 2.01(b) has to be construed as a whole and in the context of the Agreement as a whole.  Looked at purely from a question of grammatical construction and ordinary meaning the procuring of practical completion is juxtaposed with the requirement that the Hotel shall be complete with furniture, fixtures, fittings and decoration; the standard and quality of the finishes of the Hotel rooms and the main lobby were also specified.  These, taken together with the requirement to have secured the occupation permit from the Building Authority and the licence to operate the Hotel from the relevant authority, were then followed by the concluding requirement that the Hotel could commence business on or immediately after Completion.  That appears to me to be the guiding requirement as indeed was pleaded in paragraph 27(d) of the re-re-re-amended statement of claim.

18.  It would, of course, be evident that the certificates of practical completion of any building or fitting out contract work would have to be issued before Completion.  If that were not the case then, presumably, those undertaking the contract work would still be in possession of the Hotel and it would not be possible to give vacant possession of the Hotel nor, might it be said that the Hotel was ready to commence business immediately.  I would not, however, consider that the requirement for practical completion contained in clause 2.01(b) meant simply that certificates of practical completion of contract work had to have been obtained.  The requirement of practical completion in clause 2.01(b) and the obtaining of various certificates practical completion are separate matters.  As the judge rightly pointed out, in Global Time Investments Ltd v Super Keen Investments Ltd [2001] 1 HKLRD 387, Lord Hoffmann NPJ discussed, at a passage beginning at page 390H, the difficulties that would ensue in incorporating into a sale contract provisions which are commonly found in building contracts when the two types of contract are markedly different.

19.  In my view the meaning of practical completion as used in clause 2.01(b) is that the Hotel should be ready for all practical purposes so that it can be used as a hotel immediately upon Completion.  That does not mean that there might not be defects or imperfections provided that those did not interfere with the beneficial occupation and use of the premises as a hotel.  I am confirmed in this view because, it seems to me, that this was also the understanding of the witnesses.  In his first report Mr Frederick Loader, ARICS, ACIArb, FBEng. FIAS, the national director of Jones Lang Wootton Building Consultancy, whom the judge described as the plaintiff’s leading expert said:

“For Practical Completion we have taken the following definition, being ‘that all items required under the terms of Contract have been provided and that only minor defects capable of rectification without affecting the beneficial use of the building are allowable.’” Paragraph 2.0

20.  In his second report Mr Loader referred, at paragraph 22, to practical completion of a building contract.  He said that it was common to issue a certificate of practical completion with a snagging list of minor deficiencies provided it did not interfere with the beneficial use of the building.  He went on to say that it may be appropriate if 8 to 10% of the rooms were to be worked upon whilst the Hotel were in operation since that might not affect the income stream.  Later, at paragraph 69 of his report, Mr Loader repeated that in a building contract patent defects were acceptable provided that they had no effect on the beneficial occupation of the building and that what was important was that the building should be ready for occupation and use.  Mr Frankie Ho, an expert on electrical, mechanical and plumbing installations, who assisted Mr Loader in preparing his report, said much the same thing in his report linking practical completion of a building contract with the building being substantially completed and suitable for its intended purpose: see 5. v) of his Final Survey Report dated 19 January 2004.  It has to be said that what he said in his report is not entirely clear because he talks about “very minor items when there are no apparent defects”.  It is thus not clear whether in that sentence he was saying that minor items could be apparent or had to be invisible.  I should also mention the answer given in cross-examination by Mr Tuffin, a chartered Building Surveyor, called on behalf of the defendant:

Q.	It will be one of my final submissions in this case that no contract administrator, which I am asking you to be, could issue a certificate of practical completion without investigating the cause of a leak like the one shown on Mr Loader’s films; would you agree with me?
A.	No, I would not, not necessarily.  The position on practical completion is the capability of beneficial occupation.  If a leak is confined to one specific area, that does not render the rest of the hotel unusable.

(Tr. Day 48 p. 88)

Leaks

21.  The plaintiff complains of various leaks which were discovered in the Hotel.  Amongst those were leaks in the skylight of the coffee shop along the curtain wall, along the curtain wall of the lobby Lounge, along the curtain wall in the gymnasium, at the window wall in the corridor on 10^th floor and in various pantries, as well as leaks which appear to have caused damage to the wooden surfaces of various window sills.  Quite when that latter damage occurred is not altogether clear as the photographs of the damage had been taken later.  The judge’s finding in relation to the leaks specified in Schedule B to the re-re-re-amended statement of claim, which were relevant to the plaintiff’s complaint that the rooms were not of the standard and quality of finishes of the Grand Plaza Hotel, was summarised at paragraph 90 where he said:

“Three leaks were identified prior to Completion. Whether or not they were repaired is unclear. Leaks persisted after 30 June. It was a problem probably caused by workmanship rather than quality and standard of finishes. In any event it was an unsatisfactory state of affairs which constituted a breach by Hang Lung. In my view, however, it would not have prevented the Hotel commencing business. Hotels do not close down if they spring a leak.”

22.  In relation to the Schedule C complaints, those that related to the allegation that the Hotel was not ready to commence business, the judge said at paragraphs 126-7:

“126.    “8.   Water leakage.”

Six particular areas are identified.

127.     I am satisfied that Mr Loader in 1998 found more leaks than Mr Tuffin in later years. I have dealt with the general problem of water leakage earlier in this judgment. Such leaks as there were, were reparable and probably not caused by serious design faults. Most had been repaired by the time of the inspection by the defence experts. Mr Blackburn’s suggestions that : “This was a leaky hotel” and “this hotel leaked” overstated the problem. I find it was not a problem, which could form part of Sino’s decision not to complete.”

23.  In short, the judge accepted that there were leaks, indeed the presence of leaks was not denied.  Great play was made on opening this appeal of the fact that there had been leaks in the lobby and that no hotel of the required standard could possibly open with a leak in the lobby.

24.  Having considered the photographs and the plans that showed where the leaks were, even with the notation “disastrous” at various places, and in particular having considered the video which showed at least some of the leaks and the passages in the oral evidence which appear to relate to this aspect, I consider that the judge was justified in forming the view which he did.  Obviously, it is undesirable to have leaks but that does not mean that the occupant or user of a building does not have beneficial use of the building simply because there is a leak which needs attention.  It is a question of degree but having full regard to what was shown to this court, I see no basis for disturbing the judge’s finding in this respect.

25.  On the basis of the factual finding by the judge that beneficial use of the building could still be enjoyed despite the presence of the leaks, I do not consider that there has been a breach of the condition in clause 2.01(b).  There might be some inconvenience but the Hotel could still be opened and any defects rectified whilst the Hotel was in operation.  The judge held that there had not been a repudiatory breach by reason of the presence of the leaks.  Nevertheless, when considering the question of implied terms the judge said at paragraph 54 “It goes without saying that a reasonable standard was to be achieved.”  In so saying the judge clearly considered the plaintiff would be entitled to compensation for such matters as the leaks, whether in the form of damages or in an abatement of the price.  In this respect, I consider that the judge was clearly right.  The pleading of the implied terms appears to have been somewhat complex and a strict analysis might render it difficult to discover a term that really covers the situation.  Nevertheless I consider that this must be the result.

Fire safety

26.  At the hearing of this appeal the question of fire protection formed a major part of the plaintiff’s argument.  Much time was devoted to it and great emphasis was put on it.  In the court below, the defendant had already characterised the plaintiff’s approach to this aspect as opportunistic.  The judge did not demur from the defendant’s description that the plaintiff’s case never stood still but mutated like a virus.  He simply said that that description might be regarded as somewhat graphic.  Whilst I, too, would not demur from the defendant’s description of the plaintiff’s complaints on this part of the case, I would content myself with the observation that from all that can be determined the major point ultimately made in this court on behalf of the plaintiff was never originally contemplated.  Indeed, fire safety does not appear to have been a concern to the plaintiff when the letters of 23 and 29 June 1998 were written.  This court was not taken through the lengthy report that was attached to that latter letter but certainly the letters make no mention of fire safety.  Rather, the plaintiff was complaining of such matters as the gondola posts and the doghouse.  As between the parties, complaints relating to fire safety only emerged in the pleadings.  Even then the allegation in respect of fire precautions was buried amongst a plethora of complaints many of which could, at the most benevolent, be described as trivial.  Under a general plea that the defendant had failed to construct and install in the Hotel electrical, mechanical and plumbing installation, in compliance with industry or regulatory standards or workmanship commonly expected of a hotel of the standard pleaded, it was then said amongst the 29 complaints of various matters listed in the particulars in Schedule E that:

“Many holes on each floor to accommodate ducts, pipes, and electrical trunking were not properly sealed off, resulting in a failure to achieve the proper fire compartmentalisation of each floor.”

27.  There was no identification of the industry or regulatory standards that were referred to obliquely in paragraph 31(c) of the re-re-re-amended statement of claim.  The defendant for its part denied the allegation and whilst reserving its right to plead further when the plaintiff’s allegations had been made clearer, alleged in Schedule V of the re-re-amended defence and counterclaim that the holes on each floor to accommodate the passing of the ducts, pipes and electrical trunking had been properly sealed off and that these had been checked by the Buildings Authority and the Fire Services Department and no objection had been raised.  Although further allegations were made in Schedule (e) of the re-re-amended reply and defence to counterclaim those allegations there were varied and abstruse and did not amount to the complaints which ultimately became the focus of the argument in this court.

28.  The complaints in respect of fire safety amount, in effect, to three separate categories of complaint.  The first is in respect of the pipes and ducts that extend through the height of the building, the second is in relation to the sealing of the water pipes which penetrate the meter rooms and the third is in respect of holes in the floor and ceiling surrounding pipes other than those referred to above.  By far the most emphasis was placed on the pipes and ducts.

The pipes and ducts

29.  It was the plaintiff’s case that there had been inadequate sealing of the gaps around the pipes and ducts that extended the height of the building.  It was said that they penetrated the floor slabs but were not sealed and hence prevented each floor from being a separate fire compartment.  It was said that the plans that had been submitted as part of the application for the Occupation Permit had shown each storey of the building constituting a separate fire compartment.  The defendant’s answer to these allegations at trial was that the fire compartment was a riser shaft constructed of brick or concrete and that the pipes and ducts which were inside the riser shaft only exited from the fire compartment at each floor.  This is made clear in the Supplementary Expert Report of the Defendants’ expert, Mr Jeffrey Gosnell, Bundle E2, p.2616-8 which was filed during the hearing of the case.  On this appeal it was the plaintiff’s contention that this conflicts with item E1 of the Joint Memorandum of Experts, Bundle E2, p.45.  However, that point is not entirely clear and in my view the judge was perfectly justified, given the way the case been conducted, in holding that the riser shaft was a fire compartment of its own. 

30.  At paragraph 140 of the judgment the judge set out his understanding of the plaintiff’s arguments.  These had been summarised in the written closing submissions and no complaint is made that he misunderstood them.  In my view there is no ground for disturbing his finding of fact in respect of the riser shaft.  Indeed a number of matters pointed to that, not least the fact that dampers had been inserted in the ducts, not at the level of the floor slabs in the vertical part of the ducts but in the side branches of the ducts where the side branches emerge from the riser shaft.  The evidence was that it was critical that if the fire compartmentalisation ran through each floor, the fire dampers should be in the vertical run of the ducts at floor level. 

31.  The defendant’s expert, Mr Gosnell, had spent almost a day in the witness box giving evidence the focus of which was that the riser shaft was the fire compartment.  At one stage of the cross-examination he was asked about the construction of the side walls of the riser shaft in connection with whether they complied with the requirements of the Code of Practice for Fire Resisting Construction 1996 issued by the Buildings Department (“the Code”).  In particular Table A required that, for a minimum 2 hour fire resistance, walls constructed of solid bricks of clay, concrete or sand lime without plaster would have to be 225 mm thick.  There is a footnote that specifies that where the wall is finished with 13 mm gypsum plaster on each side, the thickness may be reduced to 100 mm. 

32.  Mr Gosnell stated that according to his observation the walls were indeed 225 mm thick.  It might be observed that that was something which, presumably, might be judged by the eye since that is nearly 9 inches and markedly different from 100 mm (or 126 mm), which is just under 4 inches (or slightly under 5 inches).  Nevertheless his testimony in this respect was questioned, not on the footing of any measurements that had been taken, but on the basis that the plans that had been submitted during the application for the Occupation Permit showed that the walls were 100 mm thick.  The matter was then left there in cross-examination and it was not put to him that if the walls were only 100 mm thick there would not be compliance with the Code because of the absence of an appropriate form of plastering: see the first pages of the transcript of day 53.  Indeed at page 6 of the transcript the following exchange took place :

Q.	I agree with the learned judge, with respect, that I do not think we can take this any further for the moment.
	As far as the fire protection outside the pipe ducts, the difference between you and Mr Ho is whether apertures and openings have been effectively sealed?
A.	Yes.

The matter was nevertheless taken up in re-examination.  At pages 48-9 of day 53 Mr Gosnell established that the traditional thickness for plaster was half an inch, which is the same as 13 mm.  The subsequent part of the re-examination established that both sides of the walls of the riser shaft had been rendered and were not raw brickwork. 

33.  At paragraphs 146-7 of the judgment, the judge dealt with the matter.  He accepted that the riser shaft walls were plastered.  If there were doubt as to whether the plaster was half an inch thick, that doubt must have been a very minimal doubt indeed.  In this respect, I would mention that reference does not seem to have been made to the Technical Specifications in the tender documents relating to the construction of the Hotel.  It is to be noted that they required that in respect of gypsum plaster on masonry the thickness of the plastering should be 5/8 inch and in respect of gypsum plastering, on concrete it should also be 5/8 inch on vertical surfaces and 1/2 inch on horizontal surfaces.  Given that and if the standard thickness of plaster has always been in the order of half an inch, it would be surprising in the extreme if the plaster in this respect turned out to be less.

34.  The judge said there was no certainty about the evidence as to whether there was a half inch of gypsum plaster on either side of the walls of the riser shaft.  He went on to say that where there was a lack of evidence on a point such as that, some comfort could be drawn from the fact that a certificate of fire safety had been issued by the Fire Services Department and had been renewed since.  He observed that it was not evidence of compliance and on its own it was insufficient to be relied upon by the defendant as an answer.  But he said, in my view correctly, that the existence of the certificate helped to put the bigger picture into focus.  He thus decided the matter on the basis that the plaintiff had not established that the riser shaft did not comply with the Code.  I consider he was correct in this.  Nevertheless I draw some comfort from other matters that can be understood from the papers and other sources that this conclusion is indeed likely to be correct.

35.  The point as to the adequacy of the plastering was the point which the plaintiff placed most emphasis on in arguing this appeal that the fire safety arrangements did not comply with the Code.  It seems to me that, given the evidence as to the thickness of standard plastering, the only point which could possibly be suggested is that it had not been gypsum plaster.  However gypsum is a commonly used material in relation to building works.  It is the name given to hydrated calcium sulphate and as the ordinary dictionaries show it is used in making plaster of Paris and plaster and plaster-board used in building.  The only reference to gypsum plaster in the 57 days of evidence that I have been able to find is the quotation from the Code in the re-examination of Mr Gosnell.  There is, therefore, hardly a sound basis for suggesting that the plaster used was not gypsum plaster.  Certainly the documents in the case show that gypsum plaster boards were used for the ceilings and gypsum plaster cornices were used.  In respect of the latter it seems that the cornices may have been made on site because reference was made to shrinkage when they dried. 

36.  The importance which the defendant attached to fire safety might be gleaned from the fact that it was a specific requirement in the technical specifications in the tender documents that approval of the Fire Services Department should be obtained in respect of the gypsum plaster boards that were used.  Another indication that care was taken in respect of fire safety, particularly in relation to plastering, was the requirement in the technical specifications that all wall plaster products should be “Alltek”.  Although no evidence was given as to this and it has not featured in argument, Alltek appears to be the trademark of International Coating Products SARL.  According to its web site, the company appears to be what would commonly be termed a multi-national company and it seems to be of a substantial size, making and selling surface coatings.  It was founded in Sweden in the early 1950’s based on the invention of “ready-to-use” surface fillers and thin coat plasters made by a Swedish engineer.  It is said on the English language version of the company web site that all Alltek products sold in the United Kingdom meet, amongst other things, fire propagation tests to BS 476: Part 6: 1968.  That particular British Standard is referred to in the Code of Practice at paragraph 6.4 and 6.5.  In the latter sub-paragraph it is said:

“6.5      The construction and materials specified in Tables A to F in deemed to satisfy the FRP as listed therein.  If other materials, products or construction are used, they should be tested in accordance with or assessed against BS 476 : Parts 20 to 24 : 1987 and certified as being capable of resisting the action of fire for the specified periods.  Such certification should be established by :

(a)	a test report indicating that the material, product or construction is capable of resisting the action of fire for the specified period.  The test should be carried out and the test report prepared by a laboratory recognized by the Hong Kong Laboratory Accreditation Scheme or the Building Authority; or
(b)	an assessment report against BS 476 : Parts 20 to 24 : 1987 that the material, product or construction is capable of resisting the action of fire for the specified period.  The assessment should be carried out and the assessment report prepared by -
	(i)   a laboratory recognized by the Hong Kong Laboratory Accreditation Scheme or the Building Authority; or
	(ii)  an establishment or a professional having the appropriate qualifications and experience in ‘fire resisting construction recognized by the Building Authority.’”

37.  Again, although the British Standard 476 was not referred to or available to this court, it would appear from the synopsis on the British Standards Institute web site that Part 6 relates to testing of materials whereas Parts 20-24 relate to fire tests on finished buildings and parts thereof.

38.  In my view, given all the references in the technical specifications of the tender documents to gypsum plaster (see Con pages 526 onwards), it can only be a reasonable conclusion that if, for some reason, gypsum plaster was not used on the riser shaft walls but some other plaster was used, it would have been plaster which either because it was an Alltek product, or because it was an equivalent, would have met the BS 476 standard which would have satisfied the requirements of the Code.  In my view, I can only conclude with the observation that the mutating virus referred to by the defendant in its submissions, tacitly accepted as a reasonable comment by the judge, has succeeded in bringing up yet another point which has no substance.

Holes in the floor surrounding pipes and ducts

39.  A further complaint raised at trial was as to the presence of sealant and the adequacy of the sealing of pipes and ducts.  It is clear that there was some last-minute rectification work carried out but, as the judge recorded in paragraphs 148-151 of the judgment, the complaint amounted to one that sealant had not been applied to the top and bottom of the holes.  There may have been some good reason for this particularly as most of the holes complained of appear to have been underneath baths.  There would appear to have been some confusion, initially, at the trial as to whether the Code required that the sealant should be applied to both sides of an opening.  The judge resolved that in paragraphs 150-151 by a careful reading of the Code and in particular paragraph 6.4 as well as accepting Mr Gosnell’s explanation that what was required by that paragraph was, as stated in Table 3, that the testing of the seal had to be on each side separately.  Despite this, the plaintiff attempted to reargue the matter again in this court relying on the statements in Mr Loader’s first expert report at paragraphs 5.0.1. a) and 7.0.1. a) iii).  In view of the judge’s finding as to the proper meaning of the Code, a matter in respect of which I can see no ground for complaint at all, the attempt to reopen the matter in this court must obviously fail.

Holes in the floor of be the electric meter rooms

40.  The point sought to be taken in respect of the electric meter rooms was again, a reiteration of the argument which had been rejected by the judge, this time at paragraphs 152-154 of the judgment.  The judge clearly accepted, as he was entitled to do, the evidence of Peter Ho on day 18 pages 34-35.  The point sought to be made that the defendant had instructed Shinryo to apply further sealant to gaps was considered by the judge.  The judge was perfectly entitled to come to the finding of fact which he did that the further sealant was only extra protection and that the pipes had an adequate fire stop.

Missing facilities

Kitchen

41.  In this respect the plaintiff appears to have taken a different point from that which was taken in the court below.  In so far as it is now alleged that there was no kitchen, it is evident that there was a kitchen, which was apparently in use, although it might be said not to have been formally “commissioned”.  There were, no doubt, minor complaints made in respect of it such as the fact that it needed grouting, but clearly the fact that grouting might be needed did not render the kitchen unusable, albeit there might be some inconvenience when the grouting operation needed to be carried out.

Back of house facilities

42.  Complaint is made in this court that the Hotel lacked back of house facilities which were said to be basic facilities which would be required by any hotel “of standing” in order for it to provide necessary services.

43.  The short answer to these complaints is that the defendant was required under the Agreement to build a hotel in accordance with the Approved Plan.  The Hotel that was built was referred to as a “long-stay hotel”.  It would seem that it had sufficient hotel services to fall within the categories of hotel according to the Town Planning Ordinance Cap. 131.  That would provide the benefit, relevant as regards this case, that the building might be much larger than if it were, for example, a block of flats, since the plot ratios which would be allowable in the two cases were markedly different.  Hence, although the plaintiff's complaints relate to facilities which might be argued would be present in a full service hotel, it has been unable to point to any facility which was shown on the Approved Plan but not present in the Hotel.  In my view the judge correctly rejected this ground.

Finishes equivalent to the finishes of the Grand Plaza Hotel

44.  On this appeal the plaintiff attempted to reopen the argument that the finishes of the Hotel were not equivalent to those of the Grand Plaza Hotel, at least in respect of the lobby and the rooms of the Hotel.  The judge rejected this argument.  He recognised the difference between the finishes of the two hotels.  But, as he correctly pointed out, these matters were largely a matter of taste.  The argument in this court was not strenuously put, particularly after the comment had been made that the videos of the two hotels had been seen prior to the hearing of the appeal and that first impressions, at least, did not convey the impression of the Bay Bridge Hotel being an inferior hotel.

45.  Under this heading various minor points were made, which no doubt had taken up a great deal of time during the course of the trial.  One of those points was in respect of the wiring of the wardrobe light switches which was said to constitute a safety hazard.  It was said that the internal cores of the cables to the wardrobe light switches were exposed.  Although this was evident even from the photographs, this did not appear to be particularly serious and the suggestion that that might constitute a fire hazard was clearly an outside threat to the extent that the wire was in a position where it would have been unlikely to have been damaged by the occupant of any particular room.  Mr Gosnell agreed that the matter should be rectified but was of the opinion that that would not entail any disruptive work.  Furthermore, he pointed out that he had looked in a cupboard outside the courtroom and had found precisely the same defect there, something which he said was common in many buildings.  This, again, seems to be another demonstration of the pedantic approach by the plaintiff, clutching at any proverbial straw.

Hon Le Pichon JA:

46.  I agree with the judgment of Rogers VP which I have read in draft.  This judgment is confined to the title aspects of this appeal.

Title

47.  Clause 2.01 of the agreement provided as follows:

“Completion of the agreement is conditional upon :-

(a)

the Vendor having proved that Ocean has good title to the Property in accordance with Section 13 of The Conveyancing and Property Ordinance, Chapter 219 of the Laws of Hong Kong PROVIDED THAT any requisitions or objections in respect of the title of the Property shall be delivered in writing to the Vendor’s Solicitors not later than seven (7) working days after the signing of this Agreement by all parties hereto (“the Perusal Period”) otherwise the same shall be considered as waived (in which respect time shall be of the essence of this Agreement) and, in respect of those defects which would have been revealed on examination of the title deeds and documents delivered, the Purchaser shall be deemed to have accepted such defects subject only to any requisitions and objections delivered within the time aforesaid Provided however that the Purchaser shall be entitled to raise requisition on new matter affecting the title to the Property which arises since the Perusal Period within 7 working days of the Purchaser becoming aware and have actual notice of the relevant new matter; and Ocean shall have such good title immediately before Completion;”

Therefore, not only did the defendant have to have good title, it had to show good title.  Whether or not the agreement was in substance a sale of shares or a sale of property, there is no doubt but that the plaintiff was given an express right to raise requisitions and in the context of the defendant’s obligation to show good title, the issue presented is whether it had sufficiently answered the requisitions raised.

48.  Before turning to the requisitions themselves, it would be convenient to deal first with the question whether the defendant had good title on 30 June 1998, the date for completion.

Good title

49.  It is the plaintiff’s pleaded case that the Hotel had not been constructed in accordance with the Approved Plan because of the presence of structures on the roof which allegedly constituted unauthorised building works.  The argument was that these should have been, but were not, shown on the general building plans submitted to the Building Authority for approval and that the failure to do so meant that the installations lacked approval and were thus unauthorised structures.  They were also said to give rise to a breach of the Agreement in that the Hotel was not constructed in accordance with the Approved Plan.  In this court, the only items left said to constitute unauthorised building works were concrete plinths for the chiller plants, gondola posts for the gondola system and an opening in the roof slab for the chilled water return pipe which was repeated at every floor level below it.  It was said that such unauthorised building works would expose the building owner to enforcement proceedings under section 24 of the Buildings Ordinance and/or forfeiture of the Government lease. 

50.  Whether the installations were unauthorised building works loomed large at the trial and also on appeal but, in the court below, considerable time was also spent on the question whether it was necessary to show such roof installations on the general building plans (i.e. the Approved Plan) when submitted to the Building Authority for approval (“the sub-issue”), that being directly relevant to the question whether there had been a breach of the Agreement in not constructing the Hotel in accordance with the Approved Plan.  It should be noted that whilst the judge’s determination of the sub-issue (to which I now turn) was challenged, that was hardly at the forefront of the plaintiff’s submissions in this court.

The sub-issue

51.  The term “Approved Plan” was expressly defined in the Agreement as meaning “the general building plans and specifications for the construction of the Hotel as approved by the building authority under BD Reference No. 2-9040-93”.  In this connection, the evidence of Mr Henry Lau, one of the defendant’s experts, is particularly pertinent.  In his witness statement, Mr Lau stated his understanding of the series of reference numbers used by the Building Authority in relation to plans submitted by Authorised Persons (“APs”) and Registered Structural Engineers (“RSEs”).  The prefix “1, 2, 3, 4 or 6” indicates the type of plans:

“-         For demolition and hoarding plans           --      1/0000/yy

 -         For general building plans                        --      2/0000/yy

 -         For structural plans                                 --      3/0000/yy

 -         For drainage plans                                  --      4/0000/yy

 -         For site formation plans                           --      6/0000/yy”

The reference numbers prefixed by the numeral “2” refer to general building plans.  Mr Lau’s evidence on this point was not challenged and was consistent with the meaning given to “Approved Plan” in the Agreement. 

52.  From time to time, the Building Authority issues Practice Notes for Authorised Persons and Registered Structural Engineers (“PNAPs”).  At the time of the project, PNAP 99 which was exhibited to Mr Lau’s statement, was in force.  That set out the Building Authority’s practice of adopting a curtailed check system for new building plans.  Under that system, only fundamental aspects of a proposed building would be checked for the purpose of deciding whether or not to approve plans submitted.  In PNAP 99, fundamental aspects were spelt out for each of the series of plans mentioned by Mr Lau.  The aspects considered to be fundamental for general building plans and checked in deciding whether or not to grant approval were confined to: 

“(a)	Density – site parameters, plot ratio, site coverage;
(b)	Safety – means of access for fire fighting and rescue, means of escape in case of fire, fire resistance and compartmentation, geotechnical assessment of potential landslip hazard;
(c)	Health and environment – lighting, ventilation, open space; and
(d)	Fundamental issues under allied legislation – fire safety, Outline Zoning Plans, access for persons with a disability, airport height restrictions and railway protection.”

Notably, they do not deal with structural matters.  Those come under a different type of plan i.e. under the 3/-file series which fall outside the “Approved Plan” as defined in the Agreement.  Therefore, if the roof structures had to be shown on plans under, say, the 3/- series, any omission would not result in a breach of the contractual obligation to construct the Hotel in accordance with the Approved Plan.

53.  It was also Mr Lau’s evidence (which was not challenged) that no building could be built by reference to the 2/-file series plans alone.  Those under the 3/-file series (which deal with the more fundamental aspects of structural engineering) as well as other approved plans are also necessary.  But the fact that they do not constitute the “Approved Plan” as defined in the Agreement does not mean that the Authorised Person and the Registered Structural Engineer for the project had no obligations in relation to them.  As Mr Lau explained in paragraph 12 of his report, those other approved plans as well as numerous shop drawings and working drawings not submitted to be Building Authority for approval must, nonetheless, under the building control regime in Hong Kong, be handled by the Authorised Person and the Registered Structural Engineer in their capacity as the statutory agents of the Building Authority and also the owner.  Mr Lau went on to say this:

“Among other things, their duty is to scrutinize and as appropriate endorse the use of shop drawings, combined services and builders’ work drawings, working sequence and procedures, specifications and properties of building materials, installations and equipment, plant and machinery proposed or submitted by other consultants, contractors and suppliers to ensure general compliance with the Buildings Ordinance and safety requirements.  This is an onerous duty they perform instead of the BA.  The division of labour thus established is clear and has been working well in Hong Kong.”

Again, that evidence was not challenged.  It is supported by PNAP 99 which, in the context of non-fundamental aspects of plans submitted for approval, referred to “the responsibility of the AP to ensure that all such non-fundamental aspects fully comply with the relevant regulations ….  To ensure that the expected high standards of self-regulation are maintained, the BA will carry out audit checking by examining some submissions in detail at random.”  There was also reference to the fact that “APs/RSEs should ensure that they are acquainted with [the Building (Administration) Regulations].”

54.  After a painstaking review of the arguments put by both sides and the evidence adduced in Section C of his judgment, the judge ruled that there was no strict requirement that the roof installations must appear on general building plans.  Whilst much of the reasoning addressed the meaning and scope of the exemption in section 41(3) of the Buildings Ordinance (which is dealt with separately below), paragraphs 223 to 227 of the judgment were directed at the existence or otherwise of the requirement.  In broad terms, the judge considered that it was not an obvious “Yes”.  He had found as a fact that the concrete plinths (though not the gondola posts) were in existence at the time of the Building Department inspection prior to the issuance of the Occupation Permit and would have been seen by the BA inspector.  It was common ground that they had not been included on the Approved Plan.  He was well aware of the examples of cases given by the plaintiff’s experts where plans showing concrete plinths had been submitted to the Building Department for approval or where the Building Department had required plinths to be added to the plans.  His considered decision was that he could glean little from analysing the many examples quoted because he accepted the two reasons put forward by the defendant:

“225.    Firstly, it is acknowledged that sometimes the plans include such installation sometimes they do not.  There may be reasons for including them, there may be reasons for excluding them.  If it were an automatic rule that they should be included, the defendant would have held up their hands.  In particular I accept the evidence of Mr Henry Lau for the defence, where he says, in his report :

‘The practice of Authorised Persons and Registered Structural Engineers (APs/RSEs) in Hong Kong varies with regard to the question of whether to include concrete plinths in building plans.  Some APs/RSEs are confident in their own professional judgment as regards statutory requirements, matters of engineering and matters of fact and degree.  They would, generally or in individual cases, not show the concrete plinths in the building plans, because by doing so, they would be committing themselves unnecessarily to numerous submissions of amendment plans in addition to depriving themselves and others of flexibility in design and installation.  Some other APs/RSEs, however, would like to take the matter more cautiously and show the concrete plinths on all or some building plans to ensure that no doubt may be raised as to completion of all works in accordance with approved plans.  All these mean that the practice to adopt is a matter of personal choice for the APs/RSEs in question.  This is also the practice they adopt for concrete or steel plinths for the support of gondola systems, electricity, gas, water supply and fire service installations, computer and telecommunication network, radio transmission equipment, satellite dishes, and other fittings, fixtures, plant and machinery in buildings in Hong Kong.’

226.     Secondly, the plaintiff’s argument generally is diluted by reference to a particular example (which was a Sino development).  All the examples formed part of the evidence of the plaintiff’s witness, Mr Yu Wai Wai.  In one case, that of Windsor Heights, it was suggested that the same architect as in the present case, Mr Nelson Chow, had included similar plinths on the plans, contrary to his avowed practice of not doing so.  However, further research revealed (which I accept) that Mr Chow’s practice was indeed consistent and that he had only departed from his usual practice in the Windsor Heights example on the specific instructions of Mr Yu himself.

227.     For the sake of completeness, in a successful attempt to further dilute the plaintiff’s argument based on comparisons, the defendant points to two others, Queens Place and Clifford Centre.  Without reciting lengthy passages from the expert witnesses reports it is fair to summarize these cases as follows.  They are examples of a BD officer asking for an installation to be shown on a record plan for the sake of consistency in that project.  They are not examples which demonstrate a strict requirement that they must appear on general building plans.”

Whilst, therefore, when commencing his deliberation on this aspect he said that he considered the alleged requirement “a moot point”, observing that “each project is different, each architect is different, each Registered Structural Engineer … is different.”, the judge did not accept the plaintiff’s submission that the plinths had to be shown on the general building plans. 

55.  It is clear from the report of one of the plaintiff’s experts, Mr Fred Ng, that there were drawings for the concrete plinths titled ‘ MVAC Builder’s Work – R/F’ dated 16 March 1996 from Shinryo (HK) Ltd which were not part of what, in his report, was described as “BA approved plans” which he defined as general building plans, structural plans, site formation plans, drainage plans and foundation plans of the Hotel.  Those drawings would appear to fall within the category referred to in Mr Lau’s evidence (see paragraph 53 above) that are not submitted to the Building Authority for approval but in respect of which the Authorised Person and the Registered Structural Engineer have professional duties.

56.  Moreover, as the judge noted, the Occupation Permit was not granted upon the first inspection.  In fact, it refused twice after inspections on 12 and 20 August for reasons unconnected with the concrete plinths.  It was only issued on 18 September 1997.  Had there been a requirement for these installations to be shown on the Approved Plan, it was bound to have featured in the detailed defect list compiled after each of those inspections.  The level of detail is exemplified by the following items in the list attached to Chows Architects’ fax dated 13 August 1997 requiring the contractors to complete rectification work by 19 August at (DW/1921):

“7.       Vent pipes at roof level to be completed.

 8.      Gully trap including grating at roof level to be completed. 

…

18.      Double check if the drainage installation at B3 is in accordance with the approved plans.  Record plans may be required to be amended.”     

57.  The Building Authority which had approved the general building plans on 18 July 1996 must have been well aware of what the plans contained.  It is therefore unlikely in the extreme that the absence of concrete plinths could have been overlooked.  Item 18 of the defect list showed that record plans could be required to be amended.  I entirely agree with the judge’s remarks (at paragraph 230) that:

“It is fanciful to think that the Building Department failed to appreciate the need to show the entire system of concrete plinths and A/C plant whilst, at the same time, requiring dozens of other matters to be regularized including the cat ladders on the roof.”

58.  That there had not been any oversight derives additional support from the Building Department’s internal file obtained by subpoena by the plaintiff.  Upon the receipt of the letter dated 23 June 1998 sent by Deacons to the Building Department inviting attention to the need for approval of the installations, a reinspection took place on 6 July 1998.  It was carried out by the area building surveyor who had originally carried out the OP inspection on 12 August 1997.  Internal file notes dated 11 July 1998 made after the re-inspection made reference to the report of the area building surveyor which revealed not only that the concrete plinths had been noted at the time of the original OP inspection, but that

“(d)     The A/C plants and concrete plinths on main roof were considered acceptable during OP inspection, noting 7.5KN/m² designed loading capacity of the roof and nominal scale of the plant/plinths.”  (emphasis added)

59.  The plaintiff’s written and oral submissions largely focussed on the scope and meaning of section 41(3) of the Buildings Ordinance and unauthorised building works.  The sub-issue as determined by the judge barely got a mention: it was addressed in passing: see paragraph 52(3) of the plaintiff’s outline submissions.  The plaintiff did not begin to show that it was not open to the judge to accept the evidence of the plaintiff’s expert and reach the conclusions that he did in the paragraphs cited above.  Good Think Consultants Ltd v Attorney General & Anor [1996] 4 HKC 782 which Mr Sumption QC referred to is of no assistance in the determination of the sub-issue since it did not concern series 2 general building plans.  In my view, no case has been made out that the judge’s determination of the sub-issue was wrong or should be set aside. 

Section 41(3) of the Building Ordinance

60.  I now turn to the issue of unauthorised building works, that being the crucial point on the question whether good title existed at the date for completion.

61.  The question turns on whether the building works complained of were exempt under the provisions of section 41(3) of the Buildings Ordinance.  That section provides as follows:

“(3)      Building works other than drainage works, ground investigation in the scheduled areas or site formation works not involving the structure of any building may be carried out in any building without application to or approval from the Building Authority:

Provided that nothing in this subsection shall permit any building works to be carried out in contravention of any regulation.”

“Building works” is defined as including “any kind of building construction, site formation works, ground investigation in the scheduled areas, foundation works, repairs, demolition, alteration, addition and every kind of building operation, and includes drainage works.”

62.  To come within the exemption, the works in question (a) must not ‘involve’ the structure of the building, and (b) must be carried out ‘in’ the building.  At paragraphs 235 to 236 of the judgment the judge said this:

“235.    In my judgment the opinions advanced by the expert witnesses called and relied on by the defence (Professor Chung and Henry Lau) are logical and safe to rely on.  Professor Chung says that ‘involving the structure of a building’ means affecting it ‘adversely’.  That must be right.  How else could the ‘affecting’ be relevant other than ‘adversely’ for it to ‘involve’ the structure.  Merely placing a heavy weight on a roof cannot mean that a ‘structural element’ has suddenly appeared on the roof.  Bolting that heavy weight to the roof itself does not change the argument.  Obviously, heavy weights cannot be put on roofs at random and ignored.  They all have to be taken account of when doing the loading calculations but whether it becomes part of the structure of the building by its very presence is another matter.

236.     The concrete plinths (and the steel I-beams) support machinery which is put on top of them.  That is what they are for.  They take the weight of that machinery.  If the roof is strong enough to take all the weight of items placed on the roof that is the end of the matter.  The plinth becomes an integral part of the machinery it bears, not an integral part of the building it rests on.  No one regards the chiller plant itself as a structural element, nor the gondola system attached to the gondola posts.  I simply agree that the plinths and posts which are part of the A/C plant and gondola system do not adversely affect the building’s structure merely by virtue of their weight on the roof.  The issue of their weight is confined to the loading issue, a very large subject yet to be addressed.  By the same token, a statue on a roof, whether made of paper mashier or concrete, whether free standing or bolted to the floor, would not be a structural element of the building itself.”

The judge was heavily criticized by Mr Sumption QC for not deciding the question of law himself and adopting the opinion of one of the defendant’s experts.

63.  The plaintiff submitted that works will “involve” a building’s structure not only where it adversely affects it but whenever they (i) serve a structural function or (ii) are capable of affecting the integrity of the structure.  It was submitted that if the judge were correct, the application of the exemption would depend exclusively on whether it adversely affects the rest of the structure regardless of whether the additional element itself served a structural function.  The plaintiff’s fundamental objection to the judge’s interpretation was that it would emasculate the regulatory scheme of the Ordinance in that the real decision in giving or withholding approval becomes transferred from the Building Authority to the building owner, leaving him or his representatives to decide a matter which the Building Authority is required by the Building Ordinance to decide. 

64.  With this in mind, the 3 items said to constitute unauthorised building works will now be considered in turn.

(a)     concrete plinths

65.  These are commonly placed on the surface of reinforced concrete slabs to provide a rigid and level support for services such as the chiller plant.  The plaintiff agreed with the evidence of the defendant’s expert, Mr So Kin Kwan, that one of the purposes of installing the plinths was to enable the spreading of concentrated loads from the services to a larger area in order to ease the loading intensity on the structural member, e.g. a roof slab.  The point of the exercise is self-evident: so that the load on the roof slab would be within its design imposed load.  Because the concrete plinths served as a load spreading device, it was Mr Sumption QC’s submission that, as such, they served a structural function.  His central argument was that the purpose served was critical and formed the relevant test.  It came to this: whenever the building works in question serve a structural function, they must necessarily “involve” the structure.  However, no definition of “structural function” was proferred.  Further, it is to be noted that the necessary corollary must be that building works that were, say, for a purely decorative purpose serving no “structural function” would not be regarded as “involving the structure”.  It would not, as Mr Sumption QC sought to suggest, be “a question of degree”. 

66.  In construing section 41(3), it is necessary to have regard to the building control regime in place in Hong Kong, the professional obligations and respective roles of Authorised Persons and Registered Structural Engineers, the relationship between them and the Building Authority and the manpower constraints of the latter.  As building professionals, Authorised Persons and Registered Structural Engineers are expected to maintain the “high standards of self regulation”; they have a responsibility to be acquainted with relevant regulations and full compliance with them: see the citations from PNAP 99 in paragraph 52 above repeated in PNAP 272 which superceded PNAP 99.  As the judge noted in paragraph 238 of his judgment, it is the Registered Structural Engineer’s responsibility “to ensure that the design load is not exceeded.  The BA does not do its own calculations.  It relies on the RSE.” 

67.  In this connection the following passages from the transcript are pertinent:

A.	……  When we are dealing with building construction, putting up a building, you have to put yourself in the position of the Building Authority looking at the whole thing.  What the Building Authority is concerned with is the general structural stability of the building and public health.
Q.	Safety?
A.	Safety of the building.  Since 1903, we have got the statutory acta (sic) of Authorised Persons, and since 1974 we have got the acta (sic) of Registered Structural Engineers.  These experts are there to help the Building Authority to ensure that all aspects of stability have been observed.

Under the Building Ordinance, in terms of building control, the Building Authority would be concerned with the basic building design.  Any subsequent add-ons, provided that they do not exceed the design parameters of the building, can be taken care of subsequently but properly by engineers and whoever is involved.

Only in cases where there is a problem, the Building Authority will move in.  The Building Authority cannot be bogged down with minute details all the time in all cases.  We have to segregate the two things. 

Plant installation is a common phenomenon.  It can be added on while the building is under construction.  It can be added on subsequent to the completion of the project.  But whoever is doing the installation must ensure that the basic design parameters, I mean the structural parameters, of the building are not affected, using your word.  Have I made myself clear?

(Cross-examination of Professor Chung - Tr. Day 31 p. 26 l. 19 to p. 27 l. 23)

Q.	Does that not show that the works we are concerned with here, the concrete plinths and the gondola posts, directly affect the question of structural safety?  That is why the BD is particularly interested in them.
A.	Yes, they are.  In fact, when we consider these questions, we look at two different issues.  The first one is the compliance with the building regulations.  In that, I refer myself particularly to the Building (Construction) Regulation 17, which actually talks about imposed loading.

The involvement for myself as an AP is to ensure that the prescriptive requirement in that particular section has been complied with in the design.  Then the method of structural safety has always to be on the mind of the APs and RSEs, as statutory agents, and also on the Building Authority as the administrator of the building law.

So in those two aspects, we will have to get ourselves involved.  When I said that I referred myself to the structural engineer as my consultant for advice on structural engineering matters, I would differentiate between the technicality of the structural engineering matters and that for compliance with the Building (Construction) Regulations.

Q.	But in considering the question as to whether the Building Ordinance and regulations have been complied with, where it concerns the question of structure of the building you would rely on the advice given to you by your structural engineer?
A.	Yes, I will, under my co-ordination.

(Cross-examination of Henry Lau - Tr. Day 31 p. 103 l. 10 to p. 104 l. 14)

68.  In Woomera Co Ltd v Provident Centre Development Ltd [1985] 1 HKC 257, Fuad JA (at 274H) referred to the statutory obligation imposed on the building professionals:

“a registered ‘structural engineer’ has to certify that the structural elements of the building have been erected in accordance with the approved plan and are, in his opinion, structurally safe.  This has to be endorsed by another certificate in like terms, signed by the ‘authorized person’.” 

This passage underlines the responsibility they have to assume.  See further Part V of the Building (Administration) Regulations, Cap. 123A relating to the duties of inter alia, Authorised Persons and Registered Structural Engineers.

69.  The matters set out in the preceding paragraphs form the essential backdrop or framework against which section 41(3) should be construed.  It would be wrong and contrary to common sense to approach the interpretation of section 41(3) in a vacuum, devoid of context.  I now turn to consider the two conditions that need to be satisfied for section 41(3) to apply.

(i)      “involving the structure” of any building

70.  As a preliminary matter, it is important to be clear about the terminology used.  The terms “structural member” and “structural element” appear in the experts’ reports, counsel’s written submissions as well as the judgment.  Those terms do not appear to be defined in the Buildings Ordinance and the subsidiary legislation.  It would appear to be common ground that a “structural member” of the building is equivalent to its “structural element”, but the experts disagree on the question whether or not the concrete plinths are structural members or structural elements.

71.  As pointed out by the plaintiff’s expert, Mr Brian Clancy, a definition of a “structural member” appears in the Glossary of Building and Civil Engineering Terms published by the British Standards Institution (“the BSI Glossary”).  That reads:

“Part of a structure intended to resist forces.”

“Structure” itself is defined as

“an organized combination of connected parts designed to provide some measure of rigidity, or a construction works having such an arrangement.”

It would follow that the connected parts must constitute structural members which together hold up the building.  In paragraph 8 his Supplementary Report, Mr Lau put the matter thus:

“Collectively, the structural members of a building provide rigidity, stability, robustness and load-carrying capacity required of the building.”

The plaintiff’s expert, Mr Clancy, shares this view as is evident from the meaning he gives to structural works:

“Structural Works: Is a structural member or group of structural members to be constructed or fabricated from similar or different materials that make up a structure or building and that provide the building with stability, robustness, load carrying capacity and other structural adequacies for the purpose intended.”

72.  Whilst the plinths are ‘machine supports’, in determining whether or not they are structural members, the critical factor must be whether or not they support any part of the building itself.  That is a very different matter from providing support to the plant and equipment installed in a building.  If the stability of the building is not affected by their presence or absence, the fact that the plinths constitute a load spreading device would not render them structural members.

73.  In my view, whether the building works serve a structural function shed no light on whether or not they involve the structure of the building.  If they are dispensable with in terms of holding the building up, then they would not constitute structural members even if they impose or transmit a load or are in physical contact with structural members.  On the other hand, building works which involve the addition or removal of a column, a beam, a floor or roof slab or its steel reinforcement which are structural members are a different matter.  They would unquestionably “involve the structure” of the building as would building works which alter the design or anticipated performance of a building thereby affecting the stability of the building itself.

74.  That interpretation accords with the overall building control system in place in Hong Kong and the responsibilities of building professionals vis-à-vis the Buildings Department.  The test advocated by the plaintiff, namely, whether the building works carry out a structural function would appear to let the tail wag the dog.  One must first be clear about what “structural” means.  For the reasons explained, the fact that the plinths transmit load does not of itself render them “structural”. 

75.  The test advocated by the plaintiff would not appear to be a valid or satisfactory test for the following reasons.  As noted earlier, the corollary to the plaintiff’s test is that building works carried out for a purely decorative purpose would be exempted works regardless of whether what is erected affects the stability of the building, for example, even if it were to exceed the acceptable loading catered for in the original design.  That cannot be right.  If the meaning attached to it by the plaintiff were something similar to the meaning ascribed to “structural” in Scott’s Dictionary of Building (which incidentally appears to form part of the proposed changes to section 41(3) contained in the Buildings (Amendment) Bill 2003) - where a part of the building carries load in addition to its own weight – that is clearly not a meaning that presently prevails and unless and until the amendment becomes law, it cannot be said that that is how pre-amendment, it should be construed.  Further, it is evident that it would be difficult to reconcile with the meaning given to “structural works” by Mr Clancy referred to above.

76.  For those reasons, I do not agree that the reasoning of the judge from the passages set out in paragraph 62 above is wrong.  Fairly read, those passages embody the underlying reasoning of the judge supporting his interpretation of section 41(3).  It was not, as suggested, a blind adoption of the opinion of the defendant’s experts. 

(ii)     “in” any building

77.  The second condition for the exemption is that the building works have to be carried out “in” the building.  It was said that the exemption does not apply because the concrete plinths were on the roof and therefore not “in” the building.  But the word “in” can be used in a broad sense and is often used to demote a physical juxtaposition which may not necessarily include a complete enveloping.  It is of course true that the plinths were not “inside” the building.  But that is not what is required under section 41(3).  This is to be contrasted with section 40 of the Buildings (Amendment) Bill 2003.  The amendment proposed to be made to section 41 would restrict the exemption to, inter alia, works which “are to be carried out inside an existing building”.  This would support the view that the word “in” to be found in section 41(3) is capable of encompassing building works that are not carried out “inside” the existing building and is certainly capable of extending to building works that are within the parapet walls on the roof.  Another way of putting it is that it is capable of encompassing works within the external envelope of the building.

78.  The plaintiff placed considerable reliance on the decision of Bewley J in Good Think Consultants Ltd v Attorney General [1996] 4 HKC 782.  In that case, the structure supporting the air-conditioning plant mounted at the underside of the canopy projected from the exterior.  The judgment on the point in question (at 786B) is extremely short, nothing more than that the structure “projected from the exterior”.  The roof installations under consideration are thus distinguishable in that they are within the parapet walls on the roof and certainly within the envelope of the building.  The judge chose to give the word “in” in section 41(3) a wide as opposed to a restrictive meaning.  It was open to him to do so since it is implicit from the proposed legislation that such a reading is possible. 

(b)     gondola posts

79.  I agree with the judge that the gondola posts are in the same position as the concrete plinths.  The installation of such posts on the roof does not “involve the structure” of the building where, as in the present case, it made no difference to the stability of the building.  It is also doubtful if the installation of the gondola posts would constitute “building works”.  I tend to agree with the defendant that they are not “building works”.  That is certainly the view taken by the Building Authority as appears from the internal memorandum dated 7 August 1998 and confirmed by what Mr. Thomas QC referred to as the “clean bill of health” given on 20 July 1998 in response to the plaintiff’s letter of 23 June 1998 (considered in detail below) inviting the Building Department’s attention to the existence of the posts which it asserted needed, but did not have, the Department’s prior approval.   

80.  In any event, as the judge found, most if not all of the posts had been removed by midnight on 30 June.  Even assuming that a handful remained at midnight on 30 June and further, that they were unauthorised structures, it would not necessarily follow that that would render the title defective.  See Active Keen Industries Ltd v Fok Chi-keong [1994] 1 HKLR 396 at 407 ll. 13-17.  I agree with Mr Chan SC’s submission that the test is whether there is real risk (as opposed to a mere possibility) of enforcement action being taken by the Building Authority that would materially interfere with the purchaser’s beneficial enjoyment of the property.  It was not part of the Agreement that such posts be installed.  They could easily be removed.  That being the case, it defies commonsense to suggest that if the Building Authority required the posts to be removed, that would materially interfere with the plaintiff’s enjoyment of the property.  I agree with the judge that it would be “fanciful to think that this case might turn on whether a handful of concrete posts remained in place at midnight on 30 June or not”.  The risk of any enforcement action must be negligible in the context.

(c)     openings for the chilled water return pipe

81.  The plaintiff’s pleaded case was that such an opening existed in the roof slab, that it was not shown on the Approved Plan and therefore the Hotel was not constructed in accordance with the Approved Plan.  However, it is stated in paragraph 6.2 of the report of its own expert (Mr Fred Ng), that:

“In general, such openings are not necessarily shown in the GBP.”

In other words, there is no absolute requirement that such openings be shown on the Approved Plan: it would be the exception rather than the norm that such openings be shown.  Therefore, to justify the complaint that the opening was not shown on the Approved Plan, it would be for the plaintiff to show that the exception applied.  The evidence of Mr Ng thus did not support the plaintiff’s pleaded case.

82.  In paragraph 6.3 of his report, Mr Ng stated that standard details of the opening had to be shown in a “Typical Details” plan forming part of the structural submission for Building Authority approval.  He went on to consider (at paragraphs 6.5 and 6.6 of his report) “whether the Hotel was constructed in accordance with the Approved Plan or the BA approved plans”.  But the reference to the “BA approved plans” is unhelpful and muddies the water because it has to be borne in mind that, as already noted, the defendant’s contractual obligation was to construct the Hotel in accordance with the Approved Plan and not “BA approved plans” which term, whilst including the Approved Plan, also covers a much wider spectrum of plans that have to be submitted to the Building Authority for approval.  See the definition in his report which refers to “general building plans, structural plans, site formation plans, drainage plans and foundation plans of the Hotel”.  Any requirement to obtain approval under plans other than the Approved Plan, for example, structural plans is irrelevant to the defendant’s contractual obligations. 

83.  Be that as it may, at paragraph 6.5(i) of his report, Mr Ng opined that:

“(i)	If the said openings were formed during construction, and a standard detail such as S5 was provided for in the BA approved plans, then the Hotel could be said to be constructed in accordance with the Approved Plan or the BA approved plans; ….”

Assuming, for the sake of argument, that Mr Ng’s opinion were correct, (and it would appear that the judge did proceed on that basis), what the defendant was required to establish was that (1) the openings were formed during construction and (2) a standard detail such as a S5 was provided for in the BA approved plans.  Based on the evidence that was summarised in paragraphs 252 and 253 of his judgment, the judge found that there was a preponderance of evidence from which it could safely be inferred that both requirements set out in subparagraph (i) had been satisfied.  The plaintiff has not shown any reason why the judge was not entitled to draw the inference that he did.  I do not propose to repeat all the evidence that supports the overwhelming inference that the openings had been made and formed during the casting of the slabs.  Suffice it to say that that was the evidence of Mr Nelson Chow, the Authorised Person for the project which the judge was entitled to accept.  Mr Chow also stated in paragraph 81 of his witness statement that:

“In our design, Fugro had prepared typical details for these openings, which had been submitted to and were approved by the Building Authority.”

He was absolutely right: the standard detail S5 had in fact been submitted by Fugro in June 1995 to the Building Authority and received approval on 22 August 1995.  See DW16/6684.  As explained by Wong Wai Hung in his witness statement, there were further submissions later on as design changes were made.  This is yet another example of a thoroughly bad point taken by the plaintiff in this appeal. 

Conclusion

84.  In considering the question whether the defendant did have good title at the material time, the judge took the view that the issuance of the Occupation Permit was of some relevance, at least as regards the plinths and the opening on the roof slab which were in existence at the time of its issuance.  He cited from the judgment of Liu J in Woomera Co Ltd v Provident Centre Development Ltd [1984] HKC 298 (at p. 317):

“Section 21(6)(a) confers on the Building Authority a power to refuse to issue an Occupation Permit where there has been any contravention of the provisions of the Ordinance.  Under s 42(1), the Building Authority may permit modifications of these statutory provisions.  Having regard to these provisions, particularly s 42(1), it is evident that an Occupation Permit is prima facie evidence of compliance with all the then current governmental requirements for the construction of these blocks … it is virtually unheard of in this territory that any structure substantially completed within the permitted dimensions and volume, for the occupation of which an Occupation Permit has been granted, could be said to be subject to any threat of possible Crown re-entry for some trivial deviations in the building details.

On appeal, Fuad JA expressed his approval of the general conclusions reached by Liu J.  He observed (at p. 274) that:

“… the essential fact remains that no new building may be occupied unless a permit has been issued by the Building Authority after receiving an application in the appropriate prescribed form (s 21(1) and (2) of the Ordinance).  And despite the use of the word ‘may’ in sub-s (6) of s 21 relied upon by Mr Ferris, as I read the subsection, the Building Authority is not entitled to refuse to issue an occupation permit (paras (b) to (f) of the subsection do not concern us) if the applicant establishes that no part of the building work contravenes any of the provisions of the Ordinance and the regulations made thereunder.”

He went on to say this (at 275H):

“     Further, the Crown and the Building Authority are different legal entities, and the former is not bound by the actions of the latter.  However, the Authority is the servant and agent of the Crown, and with the utmost respect to the forceful arguments addressed to us by Mr Ferris, I am sorry to have to say that it is bizarre in the extreme to suppose that where the Authority has expressed itself as satisfied that a building is fit for occupation, the Crown would forfeit the lease, and for what can only be called trifling contraventions of the Building Regulations.”

I agree entirely. 

85.  I need only add a footnote regarding the so-called loading issue.

86.  At the trial, the loading issue was a major aspect of good title that took up three weeks of the court’s time as well as over 20 pages of the judgment.  Shortly prior to the appeal hearing, the plaintiff intimated that “what the loadings were, and the exhaustive examination of this question at the trial was a distraction from the real issues.”  See Deacons’s letter dated 4 October 2005.  Nevertheless, during the appeal hearing, the plaintiff made the point that the loading was excessive, relying on an annotation made in a booklet said to be hastily put together by Fugro under cover of letter dated 8 July 1998 and said to show that the imposed load exceeded the design load by 1 kPa.  However, as Andes Wong explained, the booklet which contained detailed calculations was produced to meet allegations that there was a problem with the structure.  It is evident from Fugro’s covering letter that whilst the main roof was originally designed for machine room loading (i.e. 7.5 kPa) in the original submission in March 1996, the roof slab reinforcement was increased by amendment approved by the Building Authority on 31 January 1997.  Further, it is apparent from Table 2 of the report of the plaintiff’s expert, Dr Sammy Chan, that after reinforcement, the loading provided for in the Approved Plans was 1028 mm² which comfortably exceeded that required in the design submitted after the issue of the Occupation Permit of 934 mm, the judge rejecting Dr Chan’s calculation of what he considered was actually required and shown in the last column of that table.  The loading issue was thus a non-issue.

87.  In my view, the judge’s conclusion that “good title” did exist at the date for completion is unimpeachable.

Requisitions on title

88.  In his judgment, the judge reviewed the applicable legal principles in some detail.  Neither party has suggested that the principles set out in paragraphs 260 to 270 are erroneous or that the judge has misstated the law.  In those circumstances, it would serve little purpose in my reiterating those principles at this point.  I propose to turn immediately to the letter dated 23 June 1998 from the plaintiff’s solicitors to the defendant’s solicitors raising requisitions which the plaintiff alleges were not adequately answered.

89.  In pertinent part, the letter read as follows:

“           Following the recent inspection carried out of the property and the record plans on site by our clients it has been noted that: 

(a)       concrete plinths have been constructed on the roof of the building on which numerous HVAC and other plants have been installed; 

(b)       gondola posts have been installed on the roof of the building;

…

(d)       an additional opening on the roof (within the additional doghouse) and every level below has been made for the chilled water pipe return;

…

            On checking the approved plans it was noted that none of these works (other than (f)) were shown on them.

            It therefore appears that the construction of these works were unauthorised alterations.  We are also instructed that approval from the Building Authority for the construction of these works should have been obtained as their construction affects the load bearing capacity of the roof and lower floor levels upon which they have been constructed.

…

            Please confirm whether or not approval has in fact been obtained to the alterations.  If so, please supply us with a copy of the relevant approvals.

            Please note that our clients are still conducting their inspections and further requisitions may be necessary if additional issues are discovered.

Yours faithfully,

Deacons Graham & James”

90.  Unbeknownst to the defendant, on the same day, the plaintiff’s solicitors wrote to the Control and Enforcement Division of the Buildings Department in the following terms:

“           We are acting for a prospective purchaser of the above property with completion scheduled on the 30 June.

            On conducting a recent inspection of the property it was noted that:

(a)       constructed upon the roof of the property are a number of concrete plinths on to which have been installed numerous HVAC and other plant and equipment serving the property

(b)       gondola posts have been installed on the roof of the building

…

(d)       an additional opening on the roof (within the additional doghouse) and every level below has been made for the chilled water pipe return

…

            However on checking the record plans for the property none of these additional works were shown.  Attached to this letter is a more detailed description of the works referred to in (a) and (b) above.

            Also enclosed with this letter are a set of photos taken on site of the works and a copy of a hand written drawing showing the works on the roof.

…

            Our clients’ architect has confirmed that the works listed at (a) to (d) are structural works which would have required Building Authority approval and are not exempted works under Section 41(3) of the Building Ordinance.

            Our clients’ architect has also expressed his concern regarding the safety of the roof with the additional structures installed on the roof and the effect on the structural stability of the roof level and lower floor slabs due to the openings made to accommodate the chilled water return pipe.

            On the basis of our clients’ architects’ report Senior Counsel has expressed the view that the Building Authority have a duty to enforce the provisions of the Buildings Ordinance that therefore there is a real risk of enforcement proceedings being initiated by the Building Authority under the Building Ordinance in connection with these works.

            If you do not agree with the views expressed above please let us know within 3 days of your receipt of this letter.

            For your information as mentioned above our clients are due to complete the purchase of the above property at a consideration of HK$1,070,000,000.00 on the 30^th June 1998.

Yours faithfully,

Deacons Graham & James” 

91.  A copy of this letter was personally hand delivered by no less than Mr Robert Ng, the Chairman of Sino, to the Director of the Buildings Department on 29 June 1998.  As the judge remarked, that was “an unusual piece of theatre”.  Very possibly this was prompted by what was perceived to be the absence of any reaction from the Buildings Department given the 3-day deadline that had been unilaterally imposed by the plaintiff’s solicitors in their letter of 23 June in the event of the Buildings Department disagreeing with the views expressed. 

92.  There are striking differences in terms of the concerns expressed in the two letters dated 23 June.  To avoid confusion, I will hereafter refer to the letter dated 23 June 1998 raising requisitions as “the first requisitions letter” and the other letter dated 23 June as “the 23 June letter”.  In as much as the plaintiff had legitimate concerns underlying the requisitions raised but failed to articulate those concerns with sufficient particularity to the defendant, it would not be open to the plaintiff to complain that the defendant had failed to address those concerns.  The adequacy or otherwise of the defendant’s answers falls to be gauged solely by reference to the requisitions actually raised and not to anything which the plaintiff failed to particularize.

93.  It is as well, at this stage, to highlight the differences.  The first requisitions letter made no reference to (1) the works listed in the first part of that letter being “structural works”; (2) the fact that that was the considered professional view of the plaintiff’s architect; (3) safety concerns; (4) concerns over structural stability caused by the openings made to accommodate the chilled water return pipe; and (5) the plaintiff’s view, upon professional advice, that the exemption in section 41(3) did not apply to the structural works complained of.  The first requisitions letter gave no hint that professional assistance had been obtained or what matters of concern had arisen as a result.  More to the point, the plaintiff had already taken a position on the question whether the works constituted “structural works” and whether they fell within the exemption contained in section 41(3).  Yet it chose not to raise those matters directly with the defendant in the first requisitions letter.  The irresistable inference is that it was deliberate but in assessing the adequacy of the defendant’s answers, it is important not to elide the very different concerns expressed in the two letters of 23 June.

94.  The defendant’s solicitors answered the first requisitions letter on 27 June 1998 thus:

“We refer to your letter dated 23rdJune 1998 and our letter dated 24th June 1998 relating to the various points arising from your clients’ inspection of the property.

With regard to the various points mentioned in your letter (adopting the same numbering):- 

(a) Concrete plinths on the roof – The plinths are not structural, and therefore they are not shown on the plans.  The building has already been designed to withstand the loading of the concrete plinths and mechanical plants.  Please refer to the enclosed letters from the Architect (Chows Architect Ltd.) and the Engineers (Fugro).

(b) Gondola posts – These are merely fittings installed to the building, and therefore they are not shown on the plans.  Please also refer to the letters from the Architect and the Engineers.

    …

(d) Alleged additional opening – Pipe work penetration is not required to be shown on architectural plans.  Please refer to the Architect’s letter.

…

As explained above, none of the works is unauthorised or illegal.  The building has been constructed in accordance with the applicable regulations and has been approved by the Building Authority as evidenced by the issuance of the Occupation Permit.  The issuance of the Certificate of Compliance further confirms that the land grant conditions have been duly complied with.

…

Since none of the works mentioned are unauthorised alterations, the concerns expressed in your letter are unfounded.

Yours faithfully

Johnson Stokes & Master”

95.  It is clear from JSM’s response that the principal requisition raised, namely, whether approval had been obtained for the works in question, had been answered: approval had not been obtained.  In so far as other concerns were expressed by the plaintiff, they were premised on two matters: first, that whatever was not on the “approved plans” must constitute an unauthorised alteration the construction of which required the prior approval of the Buildings Department; and, second, specific approval must be obtained from the Buildings Department for anything constructed on the roof and floors below that had an impact on the roof or the lower floor levels.  But those assumptions are matters of law.  As Litton JA (as he then was) observed in Active Keen Industries Ltd v Fok Chi-Keong [1994] 1 HKLR 396 at 407 ll 8-12,

“A requisition as to title is not an occasion for the parties’ solicitors to bandy propositions of law: each party must decide for himself, ultimately, what the legal position is, based upon the facts known to himself: although, obviously, if one party can persuade the other to his own point of view on the law, so much the better.”

96.  Were the responses given in relation to the 3 outstanding items of concern sufficient?

(a)     concrete plinths

97.  The objection appeared to be that the plinths were not shown on the approved plans and therefore constituted unauthorised building works.  The defendant’s answer was that they did not have to be shown on the approved plans because they were not structural and that the building had been designed to withstand the loading of the plinths and mechanical plants.  A mere assertion by the vendor that there is no concern would be insufficient: see Regent Summit (Hong Kong) Ltd v Smart Business (Asia) Ltd [1998] 2 HKC 718 at 727-728.  But this was not a bald assertion on the part of the defendant’s solicitors: they enclosed letters from the Authorised Person and the Registered Structural Engineers.  The letter from the Authorised Person explained that in their opinion, the concrete plinths were a “non-structural element” and were exempted works within section 41 of the Buildings Ordinance.  On loading sufficiency, they relied on a letter from the Registered Structural Engineers confirming that the structure had been “designed to withstand the loading of the concrete plinths and mechanical plants” which they enclosed.  It was also the opinion of Fugro that the plinths were “non-structural elements”. 

98.  As noted above, both the Authorised Person and the Registered Structural Engineers are in a special position in that vis-à-vis the Building Authority, they assume professional responsibilities, the proper discharge of which is of the greatest importance.  See paragraphs 53, 66-68 above.  Those views must be given proper weight.  It is difficult to see what additional information or answer could have been given to the plaintiff when the plaintiff’s real concerns as communicated to Buildings Department on the same day as the first requisitions letter were not made known to the defendant.

(b)     gondola posts

99.  Mr Sumption QC made much of the fact that there were apparently possibly 4 versions of Fugro’s letter in support of the answer provided by the defendant.  The point was made that the Fugro letter did not state in terms that they were “non-structural elements” as the Authorised Person had represented in its letter dated 26 June 1998.  The judge was criticised for quoting in paragraph 275 of his judgment from a version that had not, in fact, been sent.  It is unnecessary to deal with these criticisms since as regards the posts, there was only one respect in which the defendant’s answer was considered inadequate.  That is apparent from paragraph 24(a) of the re-re-re-amended statement of claim: the plaintiff was simply insisting that their construction required the prior approval of the Buildings Authority.  That involved a question of law about which each party had to form its own judgment.  The observations of Litton JA in Active Keen (at 411 ll. 16–19) are particularly apt:

“What powers the Building Authority can lawfully exercise is a pure question of law.  The purchaser is in as good a position to form a judgment on that matter as the vendor once he has in his possession the same facts as the vendor.  The general practice of the Building Authority is not something peculiarly within the knowledge of the vendor.”

(c)     chilled water return type

100.  It should be noted that was the first requisitions letter referred to “the approved plans”.  In the context and having regard to the defendant’s contractual obligation, that reference must be read as a reference to the “Approved Plan” as defined in the Agreement, namely the 2/-file series or general building plans.  The point made in the first requisitions letter was whether such an opening on the roof had been shown on the “Approved Plan”, it being the plaintiff’s position that it had to be so shown.  There is no dispute that the general building plans i.e. the Approved Plan did not show such an opening and that was the answer given by the defendant.  However, and it would not appear to be disputed, a standard detail S5 plan which is not part of the Approved Plan had been submitted by Fugro and approved by the Building Authority.  That being the case, the only issue between the parties was whether the opening was made at the time of casting.  As noted above, the judge made a factual finding in favour of the defendant.

101.  The complaint in this court was that the relevant information on that issue was not provided in the response of 27 June. But there was nothing in the first requisitions letter to indicate to the defendant that the plaintiff wanted to know whether a standard detail such as the S5 existed or when the openings had been cast.  In my view, the defendant could not have been expected to address those issues when no specific question had been raised.

The second requisitions letter

102.  The plaintiff was not content with the answers provided by the defendant.  By letter dated 29 June 1998, delivered to the defendant after working hours at 17.39 p.m. the plaintiff’s solicitors raised further requisitions and enclosed a report from their Authorised Person which was over a hundred pages long.  However, the defendant was not given a chance to respond because by 10.12 a.m. the following day, 30 June 1998, the plaintiff terminated the contract.  Although the judge treated the requisitions raised in the first and second requisitions letters as raising requisitions the defendant had to answer, that was not correct.  For the purposes of this appeal, the second requisitions letter should be ignored because the defendant was never given a fair chance to respond to it.  It is trite law that a vendor all must be given a reasonable time to answer the requisition.  See Lau Kwok Wo Vilusco v Luk Kam Tong Benjamin and Lee Nga Kwai Jackie, unreported, HCA No. 3210 of 1998; and Regent Summit (supra) at 727F.

Conclusion

103.  For the reasons stated above, the judge’s conclusion that the first requisitions letter had been adequately answered is unassailable.

Hon Tang JA:

104.  I agree.

105.  At the forefront of Mr Sumption’s arguments was his submission that the expression “practical completion” in clause 2.01(b) was a term of art used in building and civil engineering contracts and which required the Hotel to be absolutely complete, apart from defects which are latent or trivial.

106.  That was not how the judge understood the plaintiff’s case.  The plaintiff’s case at trial is best reflected in the first ground of appeal, namely, that the practical completion of the Hotel did not mean the same thing as the practical completion of the works under the Pre-Completion Contracts, which were contracts for the purpose of or in connection with the construction, completion, fitting-out and decoration of the Hotel (including but not limited to all building contracts in respect of the construction of the hotel), clause 1.02(a).

107.  Clause 2.01(b) was not well drafted.  But I believe what the parties had agreed to, was, as stated by the Vice President in para. 19, that “the Hotel should be ready for all practical purposes so that it can be used as a hotel immediately upon completion.”  In other words, “practical completion” was not used as or understood to be a term of art.  That being the case, the judge was not concerned with whether the patent defects were more than trivial but whether the Hotel was ready for all practical purposes to be used as a hotel immediately upon completion.  That was how the matter was argued and decided by him.

Hon Rogers VP:

108.  The appeal will therefore be dismissed with an order nisi of costs in favour of the defendant.