MAN BON RESTAURANT LTD v. CENTA HOLDINGS LTD AND ANOTHER

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J U D G M E N T

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1. This is a dispute over the ownership of an area of approximate 194 square feet, containing machinery for the operation of lifts on the 4th floor of Fok Sing Building ("the Building") at 234 Shaukiwan Road, Hong Kong.

2. The first defendant ("D.1"), which did not appear and was not represented at the hearing, was the developer of the Building.

3. During 1974 and 1975 D.1 offered for sale the various units contained in the Building. To assist in such sales, D.1 issued a brochure, containing floor plans of these units.

4. In the copy of the brochure which was produced in evidence, the disputed area, described in evidence as the "Lift Motor Room" ("LMR"), was delineated on the floor plan for the fourth floor of the Building as being adjacent to, but not forming part of, Flat A.

5. About May 1975, the plaintiff, having seen a copy of the brochure, entered negotiations for the sale and purchase of some of the units in the Building with D.1.

6. It was the plaintiff's case that during these negotiations it was expressly made known by the directors of the plaintiff company to the directors of D.1 that the plaintiff wished to purchase a substantial area of the Building for the purposes of a restaurant and that there were to be included in the purchase a lift exclusively servicing the ground, first, second and third floors of the building, in which the restaurant was to be sited, and the LMR, which was situated on the fourth floor.

7. According to Mr. CHOW Kee Wai, the Managing Director of the plaintiff, it was agreed between him and D.1, that the plaintiff should purchase those parts of the Building discussed during the negotiations. In particular, it was the mutual intention of the plaintiff and D.1 that the LMR should be included in the sale.

8. An agreement for the sale and purchase of various parts of the building ("the agreement") was entered by the plaintiff and D.1 on 30th May, 1975. On 20th March, 1976, pursuant to the agreement an instrument was executed by the plaintiff and D.1, purporting to assign to the plaintiff the premises set out in it ("the assignment").

9. Unfortunately for all those concerned, the architect, who supplied the plans which were to be annexed to the agreement and assignment, fell into error, as he willingly acknowledged, both in correspondence with the plaintiff in May 1984 and in evidence during the hearing.

10. The plans which were attached to the agreement and the assignment both showed the area of the LMR as part of Flat A on the fourth floor and not as part of the areas of the Building purchased by the plaintiff.

11. Similar confusion arose in relation to the purchase by Mr. LAU Chi Sang ("D.2") of Flat A on the fourth floor of the Building.

12. D.2 entered an agreement for sale and purchase ("the agreement") with D.1 on 9th December, 1974. This was later confirmed by an assignment to him of the same premises on 11th October, 1976 ("the assignment"). A plan of Flat A, attached to the agreement and to the assignment, showed the area of the LMR as included within Flat A.

13. Sometime in 1984, D.2 got in touch with Mr. LAI Ho, the Manager of the Man Bon Restaurant in the Building, and complained to him that his deeds showed that the LMR belonged to him. Mr. Lai Ho referred this matter to the plaintiff's directors. The latter immediately sought the advice of a firm of solicitors, who wrote to the Architect, Mr. Leslie Ouyang, who had signed all the relevant plans and had been the architect of the Building at all stages.

14. Mr. Ouyang replied within a few days, admitting that he had made a mistake in the plans which had been supplied for the agreements and assignments and that his instructions had been that the LMR should be included in those parts of the Building which were to be assigned to the plaintiff and not within the area of Flat A on the fourth floor, which was to be assigned to D.2.

15. Negotiations between the parties, aimed at securing a rectification of the deeds of assignment on an amicable basis, failed and the plaintiff has therefore come to this court to seek the relief sought in the prayer.

EVIDENCE OF CHOW KEE WAI

16. Mr. Chow has been Managing Director of the plaintiff since the formation of the company.

17. About May 1975, he heard about the Building and thought that it would be a suitable place in which to establish a restaurant.

18. Mr. Chow therefore, relying on a sales brochure which he had obtained from the site where the Building was being constructed, went to negotiate with the developer at the address shown in the brochure.

19. At the offices of the developer, he and some of his fellow directors discussed with Mr. CHUNG Ching Man, who claimed to be the Managing Director of Centa Holdings Limited ("D.1") the possibility of purchasing parts of the Building for a restaurant.

20. During these discussions, the plaintiff's directors imposed a number of conditions, which they required the developer to satisfy. Among these were a change of entrance to the private lift, shown in the brochure as serving the ground and the first three floors of the Building, the construction of a chimney, the conversion of a staircase and toilets for restaurant purposes and the inclusion in the purchase of the private lift and the LMR which served it.

21. A copy of the brochure, on which Mr. Chow said he and his colleagues relied, was produced in evidence. This showed that, on the fourth floor, the LMR was outside the area covered by Flat A. Mr. Chow was sure that the brochure produced in evidence was identical to the one which had been relied on by the plaintiff and was the basis of the discussion held with the directors of D.1.

22. Mr. Chow had no doubt that the plaintiff intended to buy and did buy the private lift and the LMR and insisted that this was discussed and agreed by himself and his fellow directors with Mr. Chung of D.1.

23. Shortly after the negotiations, he and other directors of the plaintiff signed an agreement whereby various portions of the Building were purchased at a price of HK$4,646,400.00.

24. An examination of this agreement shows, however, that the plaintiff had purchased the ground floor, the first, second and third floors and a flat on the fourth floor, but that there is no mention, in the schedule to the agreement of the properties purchased, of the private lift or the LMR, though the lift does appear in the plans of the floors below the fourth.

25. Mr. Chow does not recall any plans having been attached to the agreement. After it had been signed, Mr. Chow was taken by a representative of D.1 to Wong and Ouyang, the Architects, so that the latter could alter their plans to fit the requirements of the restaurant.

26. During that meeting, and subsequent meetings with the architect, there was discussion as to the alterations which would have to be made to the plans and certain changes were made in accordance with these discussions. Among these alterations, the plans contained references to the private lift, the new staircase and the insertion of a chimney.

27. The assignment, dated 20th March, 1976, was explained to Mr. Chow by Mr. LEUNG Ping Duen, a solicitor's clerk employed by Peter Mo and Company.

28. According to Mr. Chow, he did not know if any plans were attached to the assignment when he signed it. He was sure that no such plans were shown to him or his fellow directors at the time; nor were they given a copy of the assignment.

29. After the assignment had been executed, a note was given by the solicitors to Mr. Chow, who took it to the construction site. There, he was given keys to all the units which had been contained in the assignments, including the key to the LMR on the fourth floor.

30. Mr. Chow insisted that the LMR and the lift were part of the plaintiff's purchase from the developers.

31. So far as Mr. Chow knew, nobody has ever had a key to the LMR, except the plaintiff. Nobody, until D.2 did so in 1984, had ever complained about the plaintiff making use of the LMR. The plaintiff has never paid any rent or fee to anyone for the use of the LMR during the past 11 years.

32. The plaintiff, which is responsible for maintaining the private lift, has sent mechanics into the LMR as necessary to carry out maintenance or repairs on the lift.

33. It was not until May 1984, when D.2 complained to Mr. LAI Ho, that the plaintiff had any inkling that the owner of Flat A claimed ownership of the LMR.

34. In cross-examination, Mr. Chow reiterated his insistence that he pointed out in terms that the lift, and any interest or benefit derived from it, including the LMR, was to be included in the purchase.

35. Relying on the brochure and on his conversation with a director of D.1, he was in no doubt that the LMR was intended to be part of the restaurant premises.

36. Mr. Chow added that, when Mr. Leung read the description of the premises contained in the agreement for sale to him, he told Mr. Chow that he was buying the lift and the LMR. Mr. Leung added that the portions being bought were marked on the plan in pink. Mr. Chow said that he only paid attention to which floors he was buying and not to what Mr. Leung said about plans.

37. When questioned as to the signing of the assignment, Mr. Chow replied that Mr. Leung did not explain the plans to him, but merely assured him that he was buying the same property as was indicated in the sales brochure and that the LMR was included in the purchase.

EVIDENCE OF LAI HO

38. Mr. Lai has been the Manager of the Man Bon Restaurant since 1975 and has been on the premises, save on holidays, virtually everyday since the restaurant opened.

39. As Manager, he has custody of the keys to the premises. These include the keys to the LMR, which were given to him by the Managing Director.

40. He frequently enters the LMR to supervise the maintenance and repair of the lift motor and to inspect the lift machinery.

41. During the past 11 years, nobody ever attempted to prevent him from entering the LMR. Mr. Lau never asked for any rent or licence fees for the use of the LMR, nor did Mr. Lau raise any queries about the LMR until 1984, when he told Mr. Lai that his title deeds showed that his flat was rectangular in shape, and asked Mr. Lai why Flat A was 'L' shaped.

EVIDENCE OF LESLIE OUYANG

42. Mr. Ouyang, an architect, is the Senior Partner of Wong and Ouyang & Associates, who were appointed as architects to draw up the plans for the Building. The various plans which relate to the Building, including those attached to the agreements and assignments, are all signed by Mr. Ouyang himself.

43. So far as he knew, the plans which he prepared were used in the sales brochure ("P.1"). He knew of no other sales brochure used for the sale of the Building.

44. So far as he was concerned, the empty space adjacent to Flat A, as shown in "P.1" was to be used as a LMR, to service the private lift which was inserted for the purposes of the restaurant on the ground, first, second and third floors. The LMR, which had a separate door, had no connection with Flat A.

45. The separation of the LMR from Flat A, and its inclusion with the private lift, was in accordance with the instructions of the developer.

46. Mr. Ouyang admitted that the plans, which were attached to the agreements and assignments, were in error, in that they failed to show that the LMR had been purchased by the plaintiff and purported to show that the LMR formed part of Flat A and had been sold to D.2.

47. At the end of his evidence, Mr. Ouyang, whose honesty is to be much commended, agreed that he had been in error and added that he had never heard of an LMR being located in domestic premises in all his 37 years as an architect. He could not see how the area could possibly be used for a domestic purpose, unless the lifts were taken away and the walls between Flat A and the LMR removed.

EVIDENCE OF LEUNG PING DUEN

48. Mr. Leung has been a clerk at Peter Mo and Company, Solicitors, for many years, and was so employed in 1975 and 1976.

49. His responsibility, in relation to the agreements and assignments, was simply to interpret the effect of each document to the directors of the plaintiff and to D.2. His normal practice was to explain an agreement or assignment and to refer the purchaser to any plans which were attached to it and to such areas as were coloured pink thereon. He insisted that he had never seen the sales brochure before and could not have told the purchasers that they were buying the LMR, because this was not referred to in terms in the agreement or the assignment.

50. He was, however, sure that he did point out the plan to D.2, when the latter executed the agreement in December 1974, though he did not recall whether or not the plaintiff had brought a sales brochure when they came to his office to sign the agreement.

EVIDENCE OF LAU CHI SANG ("D.2")

51. D.2 explained that he started negotiations for the purchase of a flat soon after sales began at the construction site in 1974. He explained to the representative of D.1 that he wanted a flat which had as much space as possible but was less expensive than other flats in the building. He was not shown any sales brochure relating to the premises and was not informed of the area or the shape of the flat, which he bought. He was told only that there would be a large flat roof attached to it. When he moved into Flat A in 1976, he did not know that there was an LMR next to the premises. He accepted the flat as it was handed over to him. "I took what I was given".

52. He first realized that the area sold to him was a square area including the LMR, two or three months after he had moved in, when a friend of his saw the agreement and told him that his flat should be larger than it was.

53. The next day, he went to see the Sales Department of the restaurant and asked them if they had title deeds for the LMR. He told them that the LMR was included in his title deeds and belonged to him. A director told him that the plaintiff did not have title deeds for it. After that he left and heard no more from the plaintiff until he raised the matter again, when he received a property tax demand about 1984. He then spoke to Mr. LAI Ho and complained to him that he owned the area of the LMR.

54. In cross-examination, Mr. Lau admitted that, when he bought the flat, all he knew was that it was a large flat because he needed as much space as possible for his work. He was not clear about the size and shape of the area when he bought it. When he paid the deposit he did not think about the size, though he was told there was a large flat roof with space to work in. He had no idea of the size of the flat and was surprised at how large the flat roof area was. He never looked at a plan and was ready to buy from the developer without knowing either the shape or size of what he was buying. The developer did not tell him what the usable area was, except that there would be a large roof area attached. He saw no brochure. When he signed the agreement for sale he was not shown any plan containing a pink coloured area.

55. When he went to execute the assignment in October 1976, he was given a pile of documents to sign, which he did. On that occasion he saw no plan, and only the places where he had to sign were pointed out to him. The document was not interpreted to him at all.

56. When he moved in, he did not know the LMR was next to his flat, although he conceded that it was very noisy and that he soon realized that machinery was in operation close to his premises.

57. He insisted that he did not know if he was buying residential premises or commercial property, though he did not think he was buying any LMR. He relied on the solicitors to protect his interests and did not expect to be cheated. Once again, he repeated that when he signed the agreement for sale in December 1974 he did not know the size and shape of the premises and this was not explained to him.

58. He admitted that he had never asked for the LMR to be included in his premises and that it was of no use to him. He insisted that the assignment indicated to him that he owned the LMR, even though he conceded that there is a concrete wall between it and his flat. He was not prepared to admit that the plan attached to his assignment could be at fault because it had been through a solicitor's firm.

THE LAW ON RECTIFICATION

59. It is well established, as a rule of equity, that where a contract has been so drawn up, by reason of a mistake common to the contracting parties, so as not to give effect to the intention of both parties, as evidenced in their previous oral understanding, the court still rectify the contract so as to carry out such intentions.

60. The burden of proof of mistake lies on the party seeking rectification. He must produce what has been described as convincing proof not only that the document to be rectified was not in accordance with the parties' intentions at the time of its execution, but also that the document in its proposed form does accord with their intentions.

61. As Simonds, J. observed in Crane v. Hegeman-Harris Co. Inc.⁽¹⁾

".... in order that this court may exercise its jurisdiction to rectify a written instrument, it is not necessary to find a concluded and binding contract between the parties antecedent to the agreement which it is sought to rectify. The judge held, and I respectfully concur with his reasoning and his conclusion, that it is sufficient to find a common continuing intention in regard to a particular provision or aspect of the agreement. If one finds that, in regard to a particular point, the parties were in agreement up to the moment when they executed their formal instrument, and the formal instrument does not conform with that common agreement, then this court has jurisdiction to rectify, although it may be that there was, until the formal instrument was executed, no concluded and binding contract between the parties."

62. In Joscelyne v. Nissen⁽²⁾, the Court of Appeal in England, expressly approving the comments of Simonds, J. mentioned above, added at page 98 -

"In our judgment the law is as expounded by Simonds J. in Cranes case with the qualification that some outward expression of accord is required. ...... Remembering always the strong burden of proof that lies on the shoulders of those seeking rectification, and that the requisite accord and continuance of accord of intention may be the more difficult to establish if a complete antecedent concluded contract be not shown, it would be a sorry state of affairs if when the burden is discharged a party to a written contract could, on discovery that the written language chosen for the document did not on its true construction reflect the accord of the parties on a particular point, take advantage of the fact."

63. I mention in passing, though the matter was not in dispute before me, that rectification is available in relation to documents to which third parties who are not before the court in the action for rectification are parties.

64. In this instance, indeed, it would be ineffective for the court to make an order for the rectification of the assignment between the plaintiff and D.1, unless a similar order could be made in relation to the assignment between D.1 and D.2.

FINDINGS OF FACT

65. I have to decide, therefore, whether the plaintiff has established, to the high degree of proof required by the authorities, that there was a common intention to assign the LMR to the plaintiff and not to D.2.

66. In relation to the assignment, executed by D.1 and the plaintiff, I rely on the uncontradicted evidence of Mr. Chow, the Managing Director of the plaintiff, to the effect that it was agreed between himself and other directors, on behalf of the plaintiff, and a director of D.1, that the private lift, for the exclusive use of the restaurant, and the LMR, which was an essential adjunct to it, were to be included in the part of the building purchased by the plaintiff.

67. Unfortunately, there was no witness for D.1 available, since it has apparently gone into liquidation and none of its directors is traceable.

68. This evidence was strongly supported by that of the architect, Mr. Ouyang, who admitted that his plans were in error and that his instructions from D.1 were that the LMR was part of the plaintiff's purchase.

69. I find further support for the argument that it was the mutual intention of the parties that the LMR should form part of the plaintiff's purchase in the evidence of Mr. Chow and of Mr. LAI Ho, that on the completion of the subsequent assignment, the key to the LMR was handed over by a director of D.1 to Mr. Chow, in the building itself.

70. I thus have no difficulty in coming to the conclusion that it was the common intention of the plaintiff and D.1, before the signing of the agreement and the assignment, that the LMR was to be sold to the plaintiff.

71. The fact that this action has arisen is, in my view, due entirely to the mistake made in the architect's office in the preparation of the plans which were to be attached to the agreement. Since then, there has merely been a repetition of that original fault, which the architect agrees was not in accordance with his instructions.

72. So far as the second agreement and assignment, between D.1 and D.2, are concerned, it follows from my finding that in May 1975 D.1 intended to sell the LMR to the plaintiff, that D.1 did not think that he had sold it to D.2 the previous December.

73. Nevertheless, I must look at the circumstances surrounding that earlier transaction, to see whether or not there was a common mistake as to the intention behind that transaction.

74. As to this, the main evidence is of course that of D.2 himself.

75. A careful examination of his evidence, however, makes it clear that he had no intention at all at that time of purchasing the LMR, which was clearly of no interest to him on his own evidence. He saw no brochures before he purchased the flat and was never shown any plans of its shape or area. Nor did he make any enquiries as to this, being prepared to rely upon the developers' honesty.

76. I find this extremely difficult to believe. I cannot imagine that a man, who is about to invest his life savings in a flat, will not make careful enquiries as to its exact location, size, area and shape.

77. In any event, had Mr. Lau been asked in December 1974 what he was purchasing, he would have said that it was a residential flat with a roof attached. He would not have answered, and in my view could not have answered, that he intended to buy a LMR as part of his premises.

78. Similarly, I have no doubt whatever that the developer did not intend to sell the LMR to D.2. This would have been entirely pointless. Although it is theoretically possible that a developer might decide to retain a lift and its LMR as part of the common parts of a large multi-storey building of this nature, I can think of no circumstances in which the developer would intend to include a LMR as part of a small residential flat.

79. I am therefore satisfied beyond reasonable doubt that the plaintiff has established that there was a mutual mistake in relation to the agreement and assignment entered into between D.1 and D.2, namely, that each of them believed that what was being conveyed to D.2 was an 'L' shaped residential flat, excluding the area of the LMR, on the fourth floor of the Building.

80. It is pertinent to observe, since this is a request for the exercise of an equitable jurisdiction, that the defendant, if rectification were not granted, would have been unjustly enriched, by reason of his acquisition of something which he did not purchase. He sought to buy a residential flat and that is what he got. He did not buy a LMR.

81. I therefore

(a)     make the declaration sought by the plaintiff in paragraph (1) of the prayer;

(b)     dismiss the counterclaim;

(c)     make orders in the terms sought in paragraph (2) and (3) of the prayer;

(d)     award costs to the plaintiff against the second defendant;

(e)     order that the second defendant's costs be taxed under the Legal Aid Regulations.

(1) [1939] 1 All E.R. 662, 664
(2) [1970] 2 Q.B. 86