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

CACV 3970/2001

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 3970 OF 2001

(ON APPEAL FROM HCA NO. 11520 OF 1999)

____________________

____________________

____________________

J U D G M E N T

____________________

Hon Rogers VP:

1. This is an appeal from a judgment of Deputy High Court Judge Longley given on 30 November 2001. The application before the judge was made under Order 18 rule 19 of the Rules of the High Court that the statement of claim should be struck out on all the grounds specified in sub-rule (1). The judge ordered that the statement of claim should be struck out insofar as it raised a number of issues. Only one of those issues is relevant on this appeal namely that which related to the terms alleged in paragraph 24 of the statement of claim to be implied. The plaintiff was given leave to amend the statement of claim within 28 days; that period was subsequently extended until 28 days after that determination of this appeal.

Background

2. The action arises out of a sale and purchase agreement entered between the plaintiffs and the defendant in respect of a flat under construction, namely, Flat A, 8th floor, Block 6, Maywood Court, Kingswood Villas which was a development in Tin Shui Wai. The form of the sale and purchase agreement (referred to in this case as the "ASP") was one which was approved by the Legal Advisory and Conveyancing Office of the Registrar General's Department for use in cases where projects were under development.

3. Under clause 4 of the ASP it was provided that:

"4.	(1)	The Vendor shall :-
	(a)	continue the construction of the Development with all due expedition;
	(b)	comply with the requirements of the Building Authority and of any other relevant Government authority relating to the Development; and
	(c)	complete the Development in all respects in compliance with the conditions of the Government Grant and the building plans on or before the 31st day of December 1997 subject to such extensions of time as may be granted by the Authorized Person in accordance with sub-clause (5)(a)."

4. Clause 4(2) provided that the vendor should complete the Development in accordance with the building plans and it was required to apply for an extension, if necessary. If the vendor were to obtain an extension, it was required to notify the purchaser that one had been granted. Clause 4(3) provided for circumstances where the vendor failed to apply for and obtain any necessary extensions. Clause 4(4) was an important clause and for convenience I will set it out in full:

"(4)	(a)	Subject to sub-clause (4)(b), if the Vendor fails to complete the Development by the date specified in sub-clause (1)(c) as extended by any extensions of time granted by the Authorized Person under sub-clause (5)(a), the Purchaser shall be at liberty by notice in writing to the Vendor to rescind this Agreement and upon service of such notice, this Agreement shall be rescinded within 7 days thereafter and the Vendor shall repay to the Purchaser all amounts paid by the Purchaser hereunder together with interest thereon at the rate of 2% per annum above the prime rate specified by The Hongkong and Shanghai Banking Corporation Limited from time to time from the date or dates on which such amounts were paid up to the date of repayment, the payment of such amounts and interest to be in full and final settlement of all claims by the Purchaser against the Vendor hereunder.
	(b)	If the Purchaser does not rescind this Agreement under sub-clause (4)(a) within 28 days from the date specified in sub-clause (1)(c) or any extended date, he shall be deemed, without prejudice to his rights under sub-clause (4)(c) hereof, to have elected to wait for completion of the Development. In such event the Vendor shall pay to the Purchaser interest at the rate of 2% per annum above the prime rate specified by The Hongkong and Shanghai Banking Corporation Limited from time to time on all amounts paid under this Agreement from the date following the date or extended date specified in sub-clause (1)(c) or any extended date up to the date of completion of the development. Such interest shall be paid or allowed as a credit to the Purchaser in respect of the purchase price on completion of the sale and purchase.
	(c)	If the Development is not completed in accordance with the building plans and the other provisions of this Agreement within a period of 6 months from the date specified in sub-clause (1)(c) or any extended date under sub-clause (5), the Purchaser shall be at liberty either to rescind this Agreement in which event the provisions of sub-clause (4)(a) relating to repayment and interest shall apply or to await the completion of the Development in which event the provisions of this sub-clause (4)(b) relating to the payment of interest shall apply."

5. It will thus be seen that the purchaser was given two opportunities to rescind the agreement should the vendor not complete the Development. Clause 4(5) provided that the vendor should be entitled to extensions of time to complete the Development in a number of specified circumstances which could all be categorised as being beyond the vendor's control. Sub-paragraph (b) provided that the vendor had to notify the purchaser in writing of any extensions which had been granted by the Authorised Person in this respect. Finally, reference should be made to clauses 4(6) and (7):

" (6) The vendor shall apply in writing for a Certificate of Compliance or the consent of the Director of Lands to assign in respect of the Development within 14 days of his having completed the Development as stipulated in sub-clause (1)(c) above.

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

6. The point at issue in this case is whether, as alleged in paragraph 24 of the statement of claim, there should be implied terms of the ASP that the vendor was obliged:-

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

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

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

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

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

7. In paragraph 25 of the statement of claim it is pleaded that the terms were to be implied to give business efficacy to the ASP and in particular to clause 4. The matters relied on in clause 25 included the fact that the ASP was part of a consent scheme the purpose of which was to protect the purchasers of uncompleted units in particular to make sure that the developments would be completed in a timely manner. It was said that the completion of the Development was a matter which was peculiarly within the knowledge of the defendant and, of course, its agents and the architect and building contractors and that it was necessary for the plaintiffs to be given the information, which would be forthcoming if the implied terms pleaded under paragraph 24 existed, so that they could exercise their right of rescission. It was emphasised that the same firm of solicitors represented both the plaintiffs and that the defendant in the transaction. That is a matter to which I will revert later.

8. The full background to the case is set out in the judgment below. Furthermore, since this is a strike out application, the facts pleaded in the statement of claim must be taken to be correct. It suffices to say that the land grant to the defendant prohibited the defendant from disposing of any part of the lot or entering any agreement to do so without the consent of the Registrar General. That consent was obtained in March 1997 but it was subject, as referred to above, to the requirement that the standard form ASP should be used. The ASP entered into between the plaintiffs and the defendant was signed in June 1997. The period around that time is commonly regarded, and has been taken for the purposes of argument, as being approximately the height of the property market in Hong Kong. Thereafter, commencing in the autumn of that year, the effects of the Asian economic downturn were felt not only in the stock market but in the property market. It can be taken that by December 1997 and January 1998 the value of the flat agreed to be purchased by the plaintiffs was significantly below the contract price.

9. Whatever the state of completion of Maywood Court by 31 December 1997, it must be assumed for the purposes of this application that the building was not complete and that the defendant was not in a position to assign the property to the plaintiffs. It will be noted that the period within which the plaintiffs could rescind the contract under clause 4(4)(b) expired on 28 January 1998. It is not alleged that the plaintiffs had made any inquiries as to the state of completion of the property at any relevant time nor that they took any steps to rescind the agreement.

10. For the purposes of determination as to whether there were implied terms in the ASP as alleged in paragraph 24 of the statement of claim, the subsequent history in relation to the contract is of interest but is not determinative. In view of the subsidiary argument raised by Mr Fung SC, on behalf of the plaintiffs, it is appropriate to mention a few brief facts. In early June 1998, the defendant gave an undertaking to Government in respect of completion of the works and a bank bond of $55 million was provided to support that undertaking. Following that, the Director of Lands gave his consent to the defendant to assign units in Maywood Court. On 26 June 1998, the plaintiffs wrote to the defendant alleging that there had been misrepresentation and indicating that they were rescinding the ASP. It might be mentioned that the alleged misrepresentation is not relevant to the present dispute and is a matter which is no longer pursued. On the following day, the defendant gave notice to the plaintiffs to complete the purchase of the flat pursuant to clauses 5(1) and 5(2) of the ASP. There was subsequent correspondence between solicitors acting on behalf of the plaintiffs and those acting on behalf of the defendant. The terms of that correspondence are not significant save that there was no allegation as to the existence of, nor that there had been a breach of, any of the implied terms pleaded in paragraph 24 of the statement of claim. Eventually, after expiry of the period of final notice to complete, solicitors on behalf of the defendant gave notice to the plaintiffs to determine the ASP. Again, it might be noted that up until this stage there had been no complaint of any failure to supply information of the type which would have been required in accordance with terms said to be implied in paragraph 24 of the statement of claim.

11. It was not until 1 April 1999 that solicitors on behalf of the plaintiffs wrote claiming to rescind the ASP on the ground that the letter of 27 June 1998, calling upon the plaintiffs to complete the purchase, contained a misrepresentation namely that the defendant was in a position to assign the property. The writ in this action together with the statement of claim was issued on 17 July 1999.

The judgment under appeal

12. The judge below considered the question as to whether it was appropriate on a strike out application to decide whether the terms alleged should be implied. It might be observed that the hearing below took 5 days and, indeed, the first ground in the notice of appeal emphasised this point. That ground was not pursued although the implications of the point did form part of the argument. It is, in my view, highly undesirable to have lengthy arguments directed to whether a pleading should be struck out. If the matter is not plain and obvious it should be left to trial. In this case, it has to be observed that there were apparently a number of other matters which were in issue which are not in issue on this appeal.

13. The judge came to the conclusion that it was unarguable that the terms pleaded in paragraphs 24(1) and (2) of the statement of claim should be implied into the ASP. He considered that the ASP was workable without implying those terms particularly in the light of the term pleaded in paragraph 24(3) that the defendant was obliged to answer questions posed by the plaintiffs. In my view, the judge was correct in his assessment. Furthermore, it has to be observed that it has not been alleged on this appeal that the judge either mistook the law or misunderstood any of the facts. The scope for an appeal in those circumstances is thus considerably restricted.

14. For the purposes of this appeal, it is sufficient to refer briefly to the summary of the law relating to implied terms given by Lord Simon when giving the opinion of the Privy Council in BP Refinery (Westernport) Pty Ltd v President and Councillors and Ratepayers of Shire of Hastings [1978] 52 ALJR 20 at 26E:

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

15. The plaintiffs' argument in this case turns upon the fact that the state of completion of Maywood Court was something that was known to the defendant and its privies and that the plaintiffs would have been unable to know, without being told, whether and to what extent the project was complete. There is, of course, some force in that argument. Nevertheless, a purchaser under an ASP such as exists in this case would, or could be expected to, have taken some interest in finding out, at the time the ASP was signed, when it was likely that his property would be ready. Indeed he should be aware of the contractual terms in relation to that. The defendant did not seek to dispute the fact that it would be required to answer questions which might be posed by or on behalf of the plaintiffs.

16. It is in this respect that, in my view, the difficulties and undesirability of vendors and purchasers being represented by the same solicitors comes sharply into focus. Mr Fung, on behalf of the plaintiffs, stressed the fact that the solicitors, acting for both parties, would be put in an impossible conflict of interest. If, when the ASP was signed, they were to advise the plaintiffs in a proper manner of their right to rescind the contract if the property was not ready on time, and then when that time arrived if they were to advise the purchasers of their rights and their ability to raise questions with the vendor, it would clearly be against the interests of the defendant. That would be all the more so in circumstances where the property market had fallen considerably. Furthermore, it might also be the case that the solicitors would have confidential information imparted by or on behalf of the defendant in relation to the property.

17. It is axiomatic that the implication of terms cannot be dependant upon the way the parties chose to conduct themselves outside the terms of the contract itself. The court can only proceed on the basis that each party is aware of the terms of the contract being signed. Particularly where the parties are entering a contract where they are legally advised, the court cannot step in and rewrite a contract which is clear and workable on its face. Had the plaintiffs been properly advised in June 1997 as to the terms of the ASP which they were signing and, perhaps, reminded of those terms in December 1997 when the time for completion arrived, had they been advised that inquiry should be made as to the state of completion of the premises, they might have been in a better position than they are today. I can well see that it might be said that such advice should have been given to the plaintiffs by a solicitor acting on their behalf. The fact that a solicitor could not do so because he had put himself in a conflict of interest cannot inure as a protection against his liability in this respect. Those, however, are matters which may or may not fall to be decided on another occasion. So far as this case is concerned the ASP was, in my view, perfectly workable without any implication of terms.

18. It is unnecessary to go further to consider whether there are any other of the factors present which would preclude the implication of terms such as are put forward in this case. A large number of cases have been cited in the course of this appeal but they all point to the indisputable fact that Lord Simon's encapsulation of the principles can only be regarded as a classic of conciseness, clarity and precision. However, whilst saying that the argument for the inclusion of the implied term fails on account of the fact that it cannot be shown to be necessary to give business efficacy to the ASP, it does not exclude other branches of the test from also being applicable. In the present circumstances, it could not be said that the parties to the ASP would have agreed at the signing that the terms pleaded as being implied "went without saying". As Mr Yu SC put in argument, the question as to when the Development had been completed could, in some circumstances, be a matter of judgment. Although clause 4(7) specifies that the issue of a Certificate of Compliance and a consent to assign by the Director of Lands shall be conclusive evidence that the Development had been completed or was deemed to have been completed, that clause in the ASP specifically left open the ability on the part of the vendor to show by some other means that the Development had been completed. It would be stretching reality to consider that the defendant would have agreed that it went without saying that it was committed to informing the plaintiffs of its view of the state of readiness of the Development, when that would be a matter of judgment and thus open to query and challenge.

19. One of the cases relied upon by Mr Fung, on behalf of the plaintiffs, was the House of Lords' decision in Scally and Others v Southern Health and Social Services Board and Another [1992] 1 AC 294. The question which arose in that case was whether there was an obligation on the defendant employer to notify the plaintiffs of their rights in relation to the purchase of "added years" for pension purposes which would be to their considerable benefit on their retirement. Lord Bridge, with whose speech all of the other Law Lords agreed, acknowledged at page 306G that the employee's entitlement to enhance his pension rights by the purchase of added years would be useless unless he was aware of his right to do so and that he could not have been expected to become aware of it unless it was drawn to his attention. Nevertheless even in those circumstances Lord Bridge considered that it was stretching the doctrine of implication of terms for the sake of business efficacy beyond its proper reach. He went on to say at page 307A,

"A clear distinction is drawn in the speeches of Viscount Simonds in Lister v. Ramford Ice and Cold Storage Co. Ltd. [1957] A.C. 555 and Lord Wilberforce in Liverpool City Council v. Irwin [1977] A.C. 239 between the search for an implied term necessary to give business efficacy to a particular contract and the search, based on wider considerations, for a term which the law will imply as a necessary incident of a definable category of contractual relationship."

He then went on to define the category of contractual relationship where he considered that the implication was appropriate

"If any implication is appropriate here, it is, I think, of this latter type. Carswell J. accepted the submission that any formulation of an implied term of this kind which would be effective to sustain the plaintiffs' claims in this case must necessarily be too wide in its ambit to be acceptable as of general application. I believe however that this difficulty is surmounted if the category of contractual relationship in which the implication will arise is defined with sufficient precision. I would define it as the relationship of employer and employee where the following circumstances obtain: (1) the terms of the contract of employment have not been negotiated with the individual employee but result from negotiation with a representative body or are otherwise incorporated by reference; (2) a particular term of the contract makes available to the employee a valuable right contingent upon action being taken by him to avail himself of its benefit; (3) the employee cannot, in all the circumstances, reasonably be expected to be aware of the term unless it is drawn to his attention."

20. In his reply speech, Mr Fung, without expanding on the matter, sought to rely on this passage on the basis that the present case formed a parallel. In my view, there can be no such parallel or policy considerations which would imply the terms pleaded in the present case. Needless to say, an employer and employee relationship is very far from a vendor and purchaser relationship. In the second place, although the terms of the present ASP were the only terms upon which the defendant was permitted to contract, that, in itself, is very far removed from a negotiation by a representative body or the incorporation of terms by reference to some other material. Equally importantly, it cannot be said that purchasers under an ASP, such as in the present case, would be unaware of the terms of the contract. In the first place, that would fly in the face of settled contract law. In the second place, reference has already been made to the duty of the solicitor to explain a contract to his client. Hence, even assuming juridical durability of Lord Bridge's new found proposition, the doctrine which he enunciated has no application in the present case.

The prevention principle

21. During the course of his argument, Mr Fung attempted to rely upon the prevention principle with particular reference to the decision in Kensland Realty Limited v Whale View Investment Limited and Another [2001] 1 HKLRD 87. At paragraph 96 of the judgment in that case, Ribeiro PJ referred to the prevention principle as being based on the underlying principle that a person is not permitted to take advantage of his own wrong, specifically that a contractual party who is in breach of an obligation owed to the other party, will be prevented from asserting rights or claiming benefits which arise in consequence of his breach. Earlier in the judgment he had referred to authority which stressed the causation requirement. At paragraph 100, he went on to say:

"In deciding how the prevention principle is to be given effect in any particular case, it is necessary to identify with some precision, the relevant breach, the factual consequences flowing from such breach and what, if any, advantage the contract-breaker seeks to take on the basis of such consequences. The principle aims specifically to deny the contract-breaker those particular advantages."

22. Turning to the present case, unless the terms pleaded in paragraph 24 of the statement of claim which required information to be provided even if it had not been requested formed part of the contract, the only relevant breach in this case would be the failure on the part of the defendant to complete the Development by 31 December 1997. In those circumstances, it cannot be shown that the defendant has in any way sought to take advantage of its own wrong. There is no consequence, direct or otherwise, from that breach in failing to complete the Development of which the defendant took advantage. Indeed, it might be said that the consequence of the failure to complete the Development by 31 December 1997 was the requirement on the part of the defendant to pay, or at least credit, interest on payments which had already been made by the purchasers. In those circumstances it is not evident how the prevention principle would be applicable in this case absent the implication of terms requiring the provision of information in circumstances where it had not been requested, as pleaded in paragraph 24 of the statement of claim. Certainly, the pleadings do not specify this.

Conclusion

23. In those circumstances, in my view, this appeal falls to be dismissed and I would make an order nisi that the costs be to the defendant.

Hon Le Pichon JA:

24. I agree.