LUK KWAN HUNG NELSON v. VICTORY MARK INVESTMENT LTD

Date of Judgment: 19 September 2003

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J U D G M E N T

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1. This action concerns the property known as Flat A, 25th Floor, Wilton Place, Bonham Road, Hong Kong and the car parking space no. 102 ("the property").

2. In September 1996 the building known as Wilton Place was under development. This was to be a multi-storeyed residential building at the junction of Park Road and Bonham Road and was described in the colour sales brochure as "one of the prestigious developments in the Mid-levels and commands a spectacular panoramic view of the Harbour and verdant mountains".

Background

3. In September 1996 the plaintiff was planning to get married and wished to buy a flat as his future matrimonial home. He was interested in Wilton Place. The defendant was the developer of Wilton Place and was a subsidiary of The Kwong Sang Hong International Ltd. The sales agent for the development was another subsidiary, The Kwong Sang Hong Estate Agents Ltd.

4. There is no dispute that the sales manager Mr Chu Shiu Cheung ("Mr Chu") met and discussed matters with the plaintiff which led to the plaintiff entering into a preliminary agreement for the sale and purchase of the property.

5. The plaintiff gave evidence, which was not disputed, that huge signboards were erected at the construction site describing the building to be erected as a luxurious residential building with superb architectural design and a communal swimming pool.

6. The plaintiff went with his father to the offices of the sales agent of the defendant to make enquiries about the development. There he was shown a model and was given a colour brochure of the development. According to the brochure, flats from the 5th floor to the 25th floor were for sizes from 383 to 778 sq. ft in gross area and from the 26th floor to the 31st floor there were to be duplex units ranging from 620 to 1,415 sq. ft in gross area. The plaintiff's father was also interested in purchasing three flats for investment purposes. However, the plaintiff himself was interested to purchase a flat for his future matrimonial home.

7. The plaintiff and his father met Mr Chu, the property sales manager, who explained to them that Flat A on the 25th floor was one of the best apartments of the entire building and was also the most expensive because the living and dining room, and the master bedroom would command a nice harbour view. It would also be open and spacious and have a high ceiling with more than 8 ft in headroom. They were shown the floor plan of Flat A on the 25th floor and the plaintiff was impressed by the architectural design and superior construction materials to be used.

8. The plaintiff believed what Mr Chu had told him and having been convinced by Mr Chu, he selected Flat A on the 25th floor ("Flat 25A") and car parking space no. 102 on the 1st floor ("the car park").

9. The plaintiff signed a preliminary agreement for the sale and purchase of the property with the defendant on 19 September 1996. The consideration for Flat 25A was $6,096,000 and the consideration for the car park was $750,000 making a total purchase price of $6,846,000. On signing the preliminary agreement for sale and purchase the plaintiff paid an initial deposit of $375,000.

10. On 25 September 1996 the plaintiff signed the formal agreement for sale and purchase ("the agreement") at the offices of Messrs Vincent T.K. Cheung, Yap & Co. and paid a total sum of $1,711,500 in accordance with the terms of the agreement. At that time the said solicitors were acting for both parties.

11. About a year later, by a letter dated 22 September 1997 the said solicitors notified the plaintiff to pay $5,134,500 as the balance of the purchase price on or before 6 October 1997 and to complete the purchase of the property. I shall return to this letter later.

12. In response to that letter the plaintiff attended the offices of the said solicitors in the morning of 8 October 1997 and paid the balance of the purchase price in the sum of $5,134,500 and the legal costs and disbursements for the purchase of the property.

13. The property was assigned to him by an assignment of the same date executed by the defendant as vendor and by the plaintiff as purchaser ("the assignment").

14. In the afternoon of the same day, 8 October 1997, the plaintiff inspected Flat 25A with his wife and mother. He found the flat to be unacceptable. His main complaint related to the depth of the beams in the three bedrooms. The beams in the three bedrooms were too low and he found the same totally unacceptable. He refused to sign the Acceptance Form provided by the management office and refused to accept the keys. He also noticed other minor defects in the fixtures and fittings but the reason that he refused to accept Flat 25A was because of the low headroom caused by the depth of the beams in the three rooms.

15. The plaintiff also informed Mr Chu on the same day of his complaints. He went to Mr Chu's office with his parents on 10 October 1997 and repeated his complaints to him in person. Mr Chu informed him that the problems regarding the beams could not be rectified as the building had already been constructed and would not be demolished. The plaintiff demanded rescission of the sale of Flat 25A and said that the defendant should re-purchase the same from him and pay him damages. After negotiations with Mr Chu it was agreed between the plaintiff and the defendant that the defendant would re-purchase Flat 25A at the same price that the plaintiff had paid, plus $1 million for compensation to be paid to the plaintiff. Solicitors then entered into "subject to contract" correspondence. In July 1998 the defendant's solicitors stated that the re-purchase had fallen through.

16. I find the facts set out above proved as I believe the plaintiff on these matters.

The claim

17. The plaintiff's primary claim is for rescission of the agreement and the setting aside of the assignment. He seeks the re-payment of the purchase price of the property, i.e. of Flat 25A and the car park, together with the legal costs and disbursements, stamp duty and management fees, government rates and government rent paid by him. The total sum claimed is $7,287,634.05 as particularised by Ms Cheng SC, for the plaintiff, in her closing submissions. The plaintiff claims damages in the alternative.

The issues

18. The parties had agreed a list of issues prior to the amendments made to the pleadings at trial. In the light of the very late discovery of documents made by the defendant at trial the plaintiff sought and obtained leave to re-amend the statement of claim. There were a number of additional issues raised. Counsel were unable to agree a revised list of issues. However, in my view the defendant's amendment to the list of agreed issues, with the amendments underlined, more accurately reflected the issues in this case. I adopt that as the list of issues. The list of issues with the amendments underlined are as set out in that list and the issues are as follows :

“ 1. In respect of measurements:

(a) Is the height of any bay window less than 500 mm and, if so, by how much?

(b) Is the height of any security bar less than 1,100 mm and, if so, by how much?

(c) Is the measurement from floor to underside of any beam less than 2,300 mm and, if so, by how much?

2. Should the terms pleaded in paragraph 6(1) to (3) of the Re-Amended Statement of Claim be implied?

3. Has the Unit been constructed in breach of:

(1) the Building (Planning) Regulations or alternatively the Building Plans referred to in the Agreement?

(2) the implied terms pleaded in paragraph 6(1) to (3) of the Amended Statement of Claim (sic)?

in respect of each of the matters set out in paragraph 1(a), (b) and (c) hereinabove.

4.	(a) Does the letter of notification to complete dated 22nd September 1997 expressly or impliedly make the representation that the Unit has been constructed in full compliance with the Building Plans, the Building (Planning) Regulations and/or the implied terms?

(b) If yes, is that a false representation that can form a valid basis of a cause of action?

5. Is the Development an illegal structure by reason of the matter set out in paragraph 1(a), i.e. the inadequate height of the bay windows, and/or by reason that the beams in the Master Bedroom and the Bonham Road bedroom were not constructed in accordance with the Building Plans and/or the Building (Planning) Regulations opening up to possible enforcement actions?

6.

(a) Was the Defendant under a duty to disclose to the Plaintiff the non-compliance (if any) of the Building (Planning) Regulations and the Building Plans by reason of the fact that no inspection by the Plaintiff of the Unit or the Carpark had been arranged by the Defendant before completion, the implied term pleaded in paragraph 6(4) of the Re-Amended Statement of Claim and/or Clause 22(i) of the Agreement?

(b) What legal effect flows from the fact that the Plaintiff had not attempted to exercise his right to inspect the Unit before Completion and/or from the averment contained in paragraph 3A of the Re-amended Reply?

 

(c) Should the duty to disclose pleaded in paragraph 6(4) of the Re-Amended Statement of Claim be implied?

 

(d) Was the Defendant under a duty to disclose under clause 22(i) of the Agreement on matters relating to any breach set out in paragraph 3 hereinabove?

 

(e) If the height of the underside of the beam is less than 2,300mm and was in breach of the Building Plans and/or the Building (Planning) Regulation, was it a material circumstance that the Defendant, if fully aware of the same, was under the implied duty pleaded in paragraph 6(4) and/or under clause 22(i) of the Agreement to notify and/or to disclose to the Plaintiff?

 

(f) Did the alterations made to the Building Plans in respect of the master bedroom and the Bonham Road bedroom materially affect the Unit and, if so, was it something the Defendant, if fully aware of the same, was under the implied duty pleaded in paragraph 6(4) and/or under clause 22(i) of the Agreement to notify and/or to disclose to the Plaintiff?

 

(g) Was the Defendant fully aware of (e) and (f) at or prior to occupation permit application and prior to the notification to complete dated 22nd September 1997?

 

(h) If yes to (a) to (g) above, was the Defendant in breach of such duty to disclose?

 

7. Has the Plaintiff affirmed the purchase by what occurred in relation to the negotiation to re-purchase?

 

8.	(a) Is the Plaintiff entitled to rescind the Agreement or set aside the Assignment by reason of the matters set out at paragraphs 3 to 7 hereinabove?

 

(b) If not, is the Plaintiff entitled to recover damages and, if so, what amount?"

The plaintiff's case

19. It is the plaintiff's case that the defendant was obliged to comply with the requirements of the Building Authority and complete the development in all respects in accordance with "the Building Plans" on or before 31 August 1997 subject to extensions as provided in the agreement. That this is so is clear from the provisions of clause 4(i) of the agreement.

20. The plaintiff also relies on four implied terms in the agreement. These have been pleaded in paragraph 6 of the re-amended statement of claim as follows :

“ (1) that the Defendant shall construct [Flat 25A] in compliance with the provisions of the Building (Planning) Regulations made under the Buildings Ordinance Cap.123;

(2) that the Defendant would ensure that the building works would be performed in a good and workmanlike manner;

(3) that [Flat 25A] would be reasonably fit for human habitation;

(4) that the Defendant has a duty to disclose to the Plaintiff all material circumstances known to the Defendant before completion of the sale and purchase of [Flat 25A]."

21. The defendant admits that terms (2) and (3) are implied warranties but denies that terms (1) and (4) are implied terms.

22. The plaintiff's case is that there were breaches of the agreement because Flat 25A as constructed had the following construction defects :

(i) the height measured from the floor to the underside of the beams in the rooms in Flat 25A in particular, the master bedroom, the bedroom facing Bonham Road ("the Bonham Road bedroom"), and the bedroom facing Park Road ("the Park Road bedroom") was not less than 2.3 m contrary to the provisions of reg.24(1) of the Building (Planning) Regulation ("the Regulations");

(ii) the height of the security bar along the middle of the bay window openings measured less than the required 1,100 mm height contrary to the provisions of reg.3A of the Regulations; and

(iii) the height of the bay window base was less than the required 500 mm from the finished floor level contrary to the Practice Note for Authorised Persons and Registered Structural Engineers being PNAP No.68 ("PNAP68").

Although there was a further complaint of another construction defect in the pleadings namely, a complaint about the area of glass in the window of the kitchen, this was not pursued at trial.

23. It is the plaintiff's case that the construction defects set out in (i) and (iii) above were material breaches of the agreement. It is accepted, however, that the construction defect set out in (ii) above was not a material breach of the agreement. The plaintiff's case is that because of the said material breaches Flat 25A was an illegal or unauthorized building work. It is further alleged that by reason of the fact that the height of the bay window base was less than the required 500 mm from the finished floor level the bay window area should be counted as part of the gross floor area of Flat 25A. That being so, the building that was constructed was in breach of reg.21 of the Regulations as it was in excess of the permitted plot ratio.

24. The plaintiff's case is that there was a breach of the architectural building plans, in particular, the section A-A plan and a non-compliance with the Regulations and the requirements of the Building Authority in respect of the headroom of the beams in the bedrooms, the height of the security bar along the middle of the bay window openings, and the height of the bay window base.

25. It is also the plaintiff's case that the defendant was fully aware of the defect of the low headroom of the beams in the bedrooms of Flat 25A before the occupation permit was obtained and before the letter dated 22 September 1997 from the defendant's solicitors was sent to the plaintiff. Yet the defendant and its representatives concealed this from the plaintiff in breach of the implied term (4).

26. The plaintiff relies further on misrepresentation. It is alleged that by the letter dated 22 September 1997 from the defendant's solicitors to the plaintiff, the defendant made a representation that was false namely, that the defendant was in a position validly to assign the premises. That was a false representation which induced the plaintiff to complete the transaction and to take up the assignment and as such the assignment is liable to be set aside and monies paid by the plaintiff should be returned to him.

27. The plaintiff alleges that he was entitled to and did rescind the agreement and the assignment is liable to be set aside.

28. The plaintiff's case in the alternative is that if rescission is not available, then damages should be awarded.

The defendant's case

29. The defendant denies that there has been a non-compliance with building plans. However, as regard the non-compliance of the Regulations, the evidence clearly shows that there has been a breach of the Regulations in so far as the height of the beams is concerned. Even the defendant's expert Mr Cheng Wai Dart ("Mr Cheng") agreed that the height of the beams in the master bedroom and the Bonham Road bedroom were less than the statutory minimum of 2.3 m.

30. It is also the defendant's case that a breach of reg.24(1) did not make Flat 25A an illegal or unauthorized structure.

31. The defendant further alleges that by a letter from the Building Authority to Mr Wong Pak Lam dated 21 February 2001 the Building Authority tolerated the breaches of the Regulations in so far as the height of the beams were concerned and that, therefore, there was no or no appreciable risk of enforcement action because of the height of the beams.

32. It is also the defendant's case that the height of the base of the bay window was not less than 500 mm. It depends on whether one measures from the top of the wooden board on the sill of the bay window, as was the defendant's contention, or from the base of the wooden board, as was contended on behalf of the plaintiff. Therefore, the plot ratio has not been exceeded. It was also said on behalf of the defendant that by adding a thicker wooden board on the sill the required minimum height could easily be achieved and there was no or no appreciable risk of enforcement action.

33. The defendant denies that the implied terms (1) and (4) should be implied. The defendant's case is that there was no duty to disclose as alleged by the plaintiff and that there was no misrepresentation.

34. It is also the defendant's case that rescission is not available to the plaintiff as he affirmed the contract by entering into a new contract which was "subject to contract" for the re-purchase of Flat 25A and that his only remedy is in damages.

The evidence

35. I heard evidence from the plaintiff on the factual matters. The defendant did not call any evidence on the factual matters. Save for a part of his evidence which I did not believe and do not accept as mentioned later, I accept the rest of the plaintiff's evidence which I believed.

36. I also heard evidence from the experts. Mr Peter Cho, an architect and an authorized person, gave evidence on behalf of the plaintiff. Mr Cheng, a chartered surveyor and authorised person, gave evidence on behalf of the defendant.

37. Dr Shillinglaw also gave evidence on behalf of the defendant. He confirmed his opinion given in his report. He was asked to conduct an environmental study on the rooms concerned in Flat 25A. He gave evidence on environmental design and his expertise is on windows and lighting and thermal effects. It was his opinion that it was necessary to make the improvements that he recommended. There was no challenge to his findings. Mr Cheng's view on the cost of the additional lighting system recommended by Dr Shillinglaw was $45,000. I accept Mr Cheng's evidence on this.

38. On the question of valuation and the diminution in value of Flat 25A caused by the effect of the beams in the bedrooms of Flat 25A, I heard evidence from Mr Ng Sai Chee ("Mr Ng") who gave evidence on behalf of the plaintiff and from Mr Simon Lynch ("Mr Lynch") who gave evidence on behalf of the defendant.

Implied terms

39. It was pointed out by Ms Cheng that by clause 4(b) of the agreement it was expressly provided that the vendor shall comply with the requirements of the Building Authority and/or any other relevant government authority relating to the development. The Building Authority's requirements are laid down in the Ordinance and the subsidiary legislation including the Regulations. Mr Mok submitted that there was no necessity to imply the term (1) and that it was inconsistent with the express obligation to comply with the building plans. The agreement is silent as to whether Flat 25A should be constructed in accordance with the Regulations. I see no difficulty in implying the implied term (1). It seems to me that such a term does not contradict and is not inconsistent with the express term to build in accordance with the building plans. The requirements of the Building Authority are contained in, inter alia, the Regulations and it seems to me that in order to give business efficacy to the contract that term should be implied. If an officious bystander were asked whether such a provision should be in the agreement the answer would in my view be "of course".

40. The defendant also disputes that there was the implied term (4). It must be remembered that the agreement was for the sale of an uncompleted unit at the time that the agreement was made. The construction was under the control of the defendant and its agents. The vendor and not the purchaser has the knowledge, either by itself or imputed to it by its agents, of the progress of the development. Ms Cheng submitted that if there is a defect in the title of the defendant known to the defendant there is a duty to disclose this before completion of the purchase. This would be a "material circumstance" to be disclosed before completion. It was submitted that there is a duty to disclose under the implied term (4).

41. I was referred to Barnsley's Conveyancing Law and Practice, 4th Edn, at page 153 where it is stated, inter alia, as follows :

“ (1) Duty to disclose. The state of the vendor's title is a matter exclusively within his own knowledge, and the purchaser is generally in the dark. The vendor is, therefore, duty bound to disclose all latent defects in his title. In this context the word 'defect' bears an extended meaning. He must disclose any flaw in the documentary title which might affect his ownership of the property and therefore, his right to deal with it. Such matters are dealt with in the Special Conditions. He must also disclose third party rights which prevented him from conveying free from incumbrances, i.e. all outstanding interests or burdens derogating from absolute ownership of the estate, irrespective of their date of creation. In this sense a defect in title simply means an incumbrance affecting the property........ A defect is latent if it cannot be discovered by the exercise of reasonable care on an inspection of the property."

42. Mr Mok relies on clause 22(i) of the agreement and submitted that because of the express term there was no room to imply term (4). Clause 22(i) provided that :

“ 22.

(i) Notwithstanding anything hereinbefore contained, the Vendor hereby reserves the right to alter the Building Plans whenever the Vendor considers necessary Provided That the Vendor shall notify the Purchaser in writing of such alteration if the same affects in any way the Property as soon as the same has been approved by the Building Authority. If as a result of such alteration, the saleable area of the Property or any part thereof according to such amended plans shall differ from the saleable area specified in Part V of the First Schedule hereto, then the purchase price shall be adjusted in proportion to the variation of the saleable area of the parts of the Property affected Provided That if the increase or reduction in the saleable area of the Property or any part thereof shall exceed 5% of the saleable area thereof as specified in Part V of the First Schedule hereto, then the Purchaser shall be at liberty to rescind this Agreement in which event all moneys paid by him hereunder shall be returned to him 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 of payment to the date of repayment. The Purchaser shall exercise his right of rescission by notice in writing to the Vendor within 30 days of the Purchaser being notified in writing by the Vendor of the approval of such amended plans by the Building Authority, and if no such notice is received by the Vendor within such time, the Purchaser shall be deemed to have accepted such plans and shall complete the purchase accordingly."

43. It was submitted that clause 22(i) was exhaustive of the duty to disclose and that the duty to disclose only arose if the saleable area was affected and that there was no room for the implication of the term (4) relied on by the plaintiff.

44. I accept that by clause 22(i) the defendant had the right to alter building plans. If the saleable area was thereby affected clause 22(i) provided that if the increase or reduction in saleable area of the property should exceed 5% of the saleable area under the agreement then the plaintiff was at liberty to rescind the agreement in accordance with clause 22(i). However, clause 22(i) only deals with alteration of building plans and not other matters. It does not deal with other "material circumstances" known to the defendant before completion of the sale and purchase of Flat 25A.

45. If the parties intended that the vendor was obliged to notify the purchaser of alterations to building plans and nothing else, it would have said so in the agreement. It does not so provide. In my view the implied term (4) is neither inconsistent with nor does it contradict clause 22(i).

46. I accept Ms Cheng's submission that circumstances which affect the title to the property would be "material circumstances". It seems to me that in a case like this where there was an agreement for the sale of an uncompleted building if the defendant knows of circumstances before completion which affect the title to the property then in order to give business efficacy to the agreement the implied term (4) should be implied in the agreement. The agreement was dated 26 September 1996 and completion did not take place until about one year later.

47. I also accept Ms Cheng's submission that it would be for the court to determine in each case what would be "material circumstances" and the term as pleaded is in my view sufficiently certain. If an officious bystander were asked as to whether the vendor has this duty to disclose "material circumstances" the answer would be "of course".

48. Where there is an incumbrance, e.g. because of possible enforcement action by the Building Authority for a breach of the Regulations, this constitutes a defect in title and if known to the defendant before completion this should in my view be disclosed by the vendor. The duty to disclose arises because of the implication of the term (4). The authorities show that the vendor has a duty to disclose incumbrances to the purchaser (see, e.g. Mortimer VP in Lucky Health International Enterprise Ltd v. Chi Kit Co., Ltd [1999] 4 HKC 21, at 39E).

49. As to issues 2 and 6(c), in my view there should be the implied terms in the agreement.

Building plans

50. The complaint made is that the plaintiff was not notified of changes in the plan showing :

(i) the introduction of a new beam not shown in the previous section A-A plan namely, beam 24B7; and

(ii) a much wider beam for beam 24B23.

Complaint is also made that the flat was not constructed in accordance with the section A-A plan, at Bundle 1, page 365.

51. Ms Cheng made it plain that the plaintiff's case was that the defendant failed to comply with the section A-A plan. Ms Cheng pointed out, rightly in my view, that the building plans as defined in clause 1(i) of the agreement means "the general building plans and specifications prepared by the Authorized Person and approved by the Building Authority under reference BLD2/2057/93 and includes any approved amendment thereto". The evidence was that the prefix "2" under the BLD reference was a reference to architectural building plans. It is the plaintiff's case that the construction of the development should be in compliance with these plans as defined in the agreement. Of course, any building must be constructed in compliance with a large number of plans including structural, framing, drainage and other plans, not just the architectural plans. But the building plans as defined in the agreement mean the architectural building plans and the development must be in compliance with these as well.

52. There can be no doubt that the beams as constructed did not comply with the Regulations in that the headroom was less than 2.3 m. There was a clear non-compliance with the Regulations. Additionally, the plaintiff's case is that the construction was in non-compliance with the section A-A plan because the line as shown in the A-A plan for the beam running across the master bedroom and the Bonham Road bedroom was not as deep as the beams which were constructed in these rooms. In the plan there was a gap between the top of the windows in these rooms and the underside of the beam. This was not so as constructed as the underside of the beam was at the top of the windows.

53. Mr Mok, however, relied heavily on the notes appearing in the drawing itself, namely :

“ (1) Do not scale drawings. Figured dimensions are to be followed. Read this drawing in conjunction with all other relevant drawings and specification. The architect shall be notified immediately of any discrepancy found therein.

(2) This drawing shall not be used for construction purposes unless otherwise certified. The contractor shall verify all dimensions on site prior to commencement of work."

There is no evidence to show that the section A-A drawing was ever certified and hence it is said on behalf of the defendant that the drawing was not to be used for construction purposes.

54. Mr Cho gave evidence that the beams as constructed depicted in exhibit P5 were in contravention of the architectural building plan at page 365 of Bundle 1 namely, the section A-A plan. The contravention was that the line as shown in the section A-A plan for the beam shows that the underside of the beam on the 25 floor was in line for the master bedroom, the Bonham Road bedroom and the living and dining room. As constructed, however, this was not the case as depicted in exhibit P5 where the underside of the beam in the master bedroom and the Bonham Road bedroom was lower and not in line with the beam in the living and dining room. This was readily apparent at the site visit and is not disputed. Because of this Mr Cho said that this was a non-compliance with the section A-A plan. He did, however, confirm in evidence that the beams were constructed in conformity with the structural and framing plans and that there was compliance with the said plans in the construction of the beams. When cross-examined about the note appearing on the approved section A-A plan namely, note (2) as set out above, he was of the view that as the plans were approved that was the certification that was required and that the plan should be used for the construction of the beams and the location of the beams showing a gap between the underside of the beams and the window. As constructed, there was no gap in the beams in the master bedroom and the Bonham Road bedroom and these were not in line but below the beam in the living and dining room. Hence it was his view that there was a non-compliance with the section A-A plan.

55. Mr Cheng gave evidence that as expressed in note (2) to the section A-A plan, the line showing the beams was not to be used for construction purposes. He accepted that the line was there for a purpose and that it indicated the rough location of the beams. He also emphasized that for the location and size of the beams one would have to have regard to the structural and framing drawings for construction purposes.

56. It seems to me that there is no evidence that any certification was ever given to use the section A-A plan for construction purposes and I do not think that note (2) to the drawing can just be ignored. Note (2) clearly stated that the drawing should not be used for construction purposes. I prefer and accept Mr Cheng's evidence that the line in the drawing indicated the rough location of the beam but this was not to be used for construction purposes. For the exact location and size of the beams one would have to have regard to the structural and framing plans. These plans were complied with.

57. It is also pertinent to observe that the Building Authority did not regard the low beams as a non-compliance with the approved plans. They treated the question of the low beams as a breach of the Regulations. This is clear from the minutes of the Building Committee II meeting of 13 February 2001 and the letter from the Building Authority to Thomas Ip, the authorized person dated 1 March 2001 asking for his explanation for the non-compliance with the Regulations due to the deficiency in the headroom under the beams. The evidence shows that the beams were constructed in compliance with the structural and framing plans. The section A-A plan was not to be used for construction purposes, as the drawing clearly stated. In my view the plaintiff has failed to establish that the beams were constructed in non-compliance with the section A-A plan which is the only plan in respect of which this complaint is made.

58. On the evidence there were also revisions made to plans in respect of which approval was sought but these were not notified to the plaintiff. However, there was no evidence to show that the saleable area of the property were affected thereby. That being so, clause 22(i) of the agreement deals with the situation. There was a duty to notify of any alteration in plans if the saleable area of the property were affected and in the circumstances the alteration of the plans was not a 'material circumstance' requiring disclosure by the defendant. On the evidence the amended plans did not affect the saleable area of Flat 25A. Issue 6(f) is resolved in favour of the defendant as the alterations made to the building plans did not in my view materially affect Flat 25A.

59. Although there is not a great difference between the measurements of Mr Cho and Mr Cheng, I prefer the measurements of Mr Cho. I find that Mr Cho was an independent expert witness. As regards Mr Cheng, he is undoubtedly well experienced having worked in the Buildings Department from 1963 to 1999 when he retired as the Deputy Director of Buildings. I have, however, had to approach the evidence of Mr Cheng with caution. Ms Cheng demonstrated in the cross-examination of Mr Cheng that he had failed to mention certain matters in his reports and evidence-in-chief which he, in my view, ought to have disclosed. The authorized person Thomas Ip was a client of his although not at the time that he was first advising the defendant. Also, he admitted in cross-examination that Thomas Ip had sent him by fax a copy of the Buildings Department letter dated 17 September 2001 informing him that the department was conducting an investigation into breaches of the Buildings Ordinance in regard to the deficiency of the headroom at Wilton Place. Mr Cheng was asked by Mr Ip to comment on the letter and to advise and he was asked to contact him by telephoning him on his mobile phone. Mr Cheng said that he had declined to advise him as he was advising the defendant. I accept that he was telling the truth about this. However, Mr Cheng failed to mention this approach to him by Mr Ip until he was cross-examined on it. He should have disclosed these matters either in his later reports or in-chief. Ms Cheng criticized his impartiality in giving evidence as an expert because of this and also because he expressed sympathy for his client, the defendant. To be fair to him though, he also expressed sympathy for the plaintiff. I have taken these matters into account in assessing the reliability of his evidence and the weight to be placed on it.

The deep beams

60. I prefer the measurements of Mr Cho to that of Mr Cheng on these matters. As the report of Mr Cho and the photographs show, the beam in the master bedroom as constructed shows a wooden stepped beam with only 2,080 mm headroom. This is clearly short of the required 2,300 mm under reg.24(1) being short by 220 mm. It was agreed between the experts, Mr Cho and Mr Cheng, that traditional building practice allowed for some 15 mm for plaster under the beam and some 50 mm for the timber floor finish including the floor screeding on the floor slab making a total allowance of 65 mm. Even after this allowance the headroom was still short by 155 mm. This was, in my view, a clear non-compliance with reg.24(1) of the Regulations and I so find.

61. In his report Mr Cho said that the deep beam in the Bonham Road bedroom gave a clear headroom of only 2,070 mm being short by 230 mm of the 2,300 mm required. Again this shows a clear non-compliance with reg.24(1) even after the allowance of 65 mm of the plaster under the beam and the timber floor finish, leaving the headroom still short by 165 mm and a clear non-compliance with reg.24(1) and I so find.

62. Mr Cho said that in so far as the Park Road bedroom was concerned the headroom was only 2,235 mm which was 65 mm less than the 2,300 mm required. I find that this was acceptable, bearing in mind the allowance given of 65 mm. I find that there was no breach of the Regulations in so far as the Park Road bedroom was concerned.

63. I have dealt with issue 1(c) in respect of the measurements from floor to underside of the beams in the three rooms.

64. As to whether there has been a contravention of the Regulations there can, in my view, be no doubt that there has been a contravention in respect of the headroom of the beams. As to issue 3(1) Flat 25A was in my view constructed in breach of the Regulations but not in breach of the section A-A plan.

65. As to issue 3(2), Flat 25A was also constructed in breach of the implied term (1). I also accept Ms Cheng's submission and find that the defendant was also in breach of the implied term (3) that Flat 25A would be reasonably fit for human habitation. Dr Shillinglaw's view was that it was necessary to install the additional lighting system recommended by him. I accept Ms Cheng's submission that the evidence shows that it was necessary to install the additional lighting system to make Flat 25A reasonably fit for human habitation.

The bay windows

66. Mr Cho's evidence was as contained in his report. His evidence was that the level of the bay windows throughout the property measured mostly only 460 mm from the finished floor level. I accept and prefer Mr Cho's measurement to Mr Cheng's. As to issue 1(a) the height of the bay windows is 40 mm less than 500 mm. Mr Cho relied on PNAP 68 and expressed the view that if the base of the bay window was less than 500 mm from the finished floor, then the area of the bay window was to be used for calculating the gross floor area in which case the permitted plot ratio for the building would be exceeded. This would mean that the building was an illegal structure and liable to enforcement action by the Building Authority. Mr Cho was of the view that even if one took the view that the measurement was from the top of the wooden board on the sill of the bay window to the floor that was still short of the 500 mm requirement in PNAP 68 and hence the area of the bay window should be counted as part of the gross floor area in which case the permitted plot ratio would be exceeded. There was no dispute about the calculations of Mr Cho nor was there any dispute of the fact that if the area of the bay window was to be included in the gross floor area then the permitted plot ratio would be exceeded. However, there is a dispute between Mr Cho and Mr Cheng as to whether the top of the wooden board or the underside of the wooden board on the sill of the bay windows should be taken as the measuring point. On this dispute I prefer the evidence of Mr Cheng. Mr Cho had no personal experience of the operation of PNAP 68 in relation to bay windows whereas Mr Cheng clearly had.

67. It is plain that PNAP 68 has no statutory force and is not part of the Regulations. It is a practice note for guidance. Part of Mr Cheng's duties in the Buildings Department was to review and updating such practice notes. I accept that the rationale for PNAP 68, as submitted by Mr Mok, is clear. This is explained in paragraph 3 of PNAP68, in particular the last sentence which states :

“ For the present the position is accepted that if projections are not at a floor level, or potential floor level, and do not dominate the face of a building, measurement as accountable gross floor area is not required."

There can be no doubt that the bay windows were not at floor level or potential floor level as was readily apparent at the site visit.

68. Mr Cho did not accept that placing a thicker wooden board on the window sill could remedy the situation. Mr Cheng was, however, adamant that adding a thicker piece of wood to make the required height was acceptable. I accept Mr Cheng's evidence that the matter can be rectified by adding a thicker piece of wood on the window sill of the bay windows in Flat 25A to bring it up to a height of 500 mm. In the circumstances, I do not think that there is any real risk of enforcement action even though the height of the bay window was less than 500 mm. This can easily be rectified at the cost of a hardwood window sill of $1,500 for each bay window or a total of $6,000 for the four bay windows.

Security bar

69. I accept the measurements of Mr Cho that the height of the security bar is only 1,080 mm. As to issue 1(b), this is 20 mm less than the required 1,100 mm under reg.3A of the Regulations. This can easily be rectified by adding another security bar to the required height and I accept the evidence of Mr Cheng that this would rectify the defect. It would cost $5,000 for adding another security bar in all the bay windows. This is a trivial breach which can easily be rectified and there is in my view no real risk of enforcement action in respect of the security bar.

Was Flat 25A an illegal or unauthorised structure?

70. Mr Mok further submitted that even if there were a breach of the Regulations and a contravention of the building plans, it does not follow that Flat 25A was an illegal or unauthorized structure.

71. He makes the valid point, which I accept, that nowhere in the Regulations does it provide that a contravention of the Regulations amounts to a criminal offence. Hence, the building works are not illegal or unauthorized.

72. Ms Cheng submitted that if there is a contravention of the Regulations and building works are carried out in contravention thereof the building works are illegal and/or unauthorized. Her submission was to the effect that any breach of any regulation is illegal. Despite Ms Cheng's efforts I am unable to accept her submissions that if building works are carried out in contravention of the Regulations but where no offence is committed then the works are illegal or unauthorized.

73. It is plain that no person shall commence or carry out any building works without first having obtained approval. This is provided in section 14(1) of the Ordinance. Where works are carried out without first having obtained approval then an offence is committed (section 40(1)) and the works so carried out are illegal and unauthorized. This is beyond dispute. Mr Mok submitted that a contravention of reg.24(1) in relation to the low headroom of the beams does not mean that an offence has been committed. It just means that there has been a contravention of the Regulations. The works carried out are not illegal or unauthorized works. There is nothing in the Ordinance which provides that works carried out in contravention of the Ordinance including the Regulations are illegal or unauthorized works. I accept Mr Mok's submission. In my view, where a contravention of the Regulations does not result in an offence the works carried out in contravention of the same are not illegal or unauthorized works.

74. Mr Mok drew my attention to the cases where works were regarded as illegal or unauthorized. These were cases involving a breach of section 14 of the Ordinance (See, for example, Spark Rich (China) Limited v. Valrose Limited, CACV249/1998, 9 March 1999, where the roofed structure was not authorized by the Building Authority presumably under section 14 and Active Keen Industries Limited v. Fok Chi Keong [1994] 2 HKC 67, where the unauthorized works namely, building additional flats on each floor of the multi-storeyed building were carried out in contravention of section 14).

75. Mr Mok further submitted that section 24(1) which provides, inter alia, that where any building or building works have been or are being carried out in contravention of any of the provisions of the Ordinance (which in my view would include the Regulations) then the Building Authority may by order in writing require :

(a) the demolition of the building or building works; and

(b) such alteration of the building or building works as may be necessary to cause the same to comply with the provisions of the Ordinance (including the Regulations) or otherwise to put an end to the contraventions thereof.

The Building Authority would also specify the time within which the demolition or alteration or works required by the order is to be commenced and completed.

76. If an order which is served as required by section 24(2) is not complied with, then the Building Authority may demolish or alter or cause to be demolished or altered the building or building works and the costs for doing so may be recovered from those whom the orders have been served. It was Mr Mok's submission that illegality only comes in when an order made under section 24 has not been complied with. I accept Mr Mok's submissions.

77. Although the works are not illegal or unauthorized building works, there was nevertheless a contravention of reg.24(1) in relation to the low headroom of the beams in the master bedroom and the Bonham Road bedroom.

78. The defendant also relied on the fact that the Building Authority has tolerated the low beams. By the letter from Wong Pak Lam & Associates dated 12 December 2000 written on behalf of "the Kwong Sang Hong International Ltd., the former developer" Wong Pak Lam & Associates brought the question of the low headroom to the attention of the Building Authority. They also enclosed the report of Dr Shillinglaw and stated :

“ Based on the above findings, we crave your very kind permission of granting modification/exemption to Building (Planning) Regulations 24(1) upon final submission of Addition and Alteration proposal."

79. The Building Authority in the Building Committee II meeting of 13 February 2001 decided to tolerate the deficiency in the headroom of the beams in flats A and D on 25/F Wilton Place. By letter dated 21 February 2001 Mr Wong Pak Lam was informed of the decision to tolerate the deficiency in the headroom under the beams in the two flats "subject to the provision of the specially-designed lighting and ventilation as stipulated in [Dr Shillinglaw's Report]." It was therefore submitted on behalf of the defendant that there was no risk of enforcement action by the Building Authority arising from the deficiency in the headroom of the beams.

80. I am unable to accept this submission. Mr Wong Pak Lam did not act for the then owner of Flat 25A, namely, the plaintiff in seeking a tolerance from the Building Authority. Also, Mr Wong Pak Lam stated that :

“ Recently it has come to the attention of Kwong Sang Hong that clear headroom underneath beams in the bedrooms of Flats A & D of the 25/F are less than 2,300 mm and therefore cannot meet the requirement of regulation..."

On the evidence it was wrong and misleading to state that such matter only came to the attention of The Kwong Sang Hong International Ltd "recently". The evidence shows that this was a matter known to the authorized person, registered structural engineer and the defendant even before the occupation permit dated 4 September 1997 was issued. On 11 August 1997 the site photographs taken by the authorized person showed that Flat 25A did not have adequate headroom and was not in compliance with the Regulations. On 12 August 1997 the registered structural engineer wrote to the authorized person enclosing a set of repair work drawing. This was copied to the defendant and the registered contractors. However, no remedial work was in fact done to rectify the problem of the headroom.

81. On 12 August 1997 the authorized person applied for the occupation permit by letter of that date which was copied to, inter alia, the defendant. Notwithstanding the contravention of the Regulations, the authorized person still applied for the occupation permit and failed to bring the contravention of the Regulations to the attention of the Building Authority.

82. By the architect's instructions dated 16 August 1997 issued to the registered contractors, the authorized person stated that :

“ Re : Headroom

As you were verbally instructed before with R.S.E. sketches already made available before, all areas short of required headroom for the above project must be rectified as per Building Regulations and requirements.

Should you fail to rectify the above on time and should the above jeopardize the issue of O.P., you shall be held totally responsible."

83. By letter dated 16 September 1997 the defendant, through The Kwong Sang Hong International Ltd, wrote to the authorized person referring to a joint inspection and stating :

“ Kindly issue some sketch drawings for the interior fitting out of units 25A and 25D, incorporating features discussed such as false ceilings, concealed lighting and curtain. Please remind the main contractor that these two units should be finished and cleaned with even more care."

84. It is plain on the evidence that the defendant knew of the deficiency in the headroom of the beams in Flat 25A and that there was a contravention of the Regulations. The letter dated 25 March 2000 from the authorized person to the defendant stated clearly, inter alia, that :

“ ... with regard to the inadequate headroom of [flat 25A], please note the following :

(1) We confirm that the employer in the presence of the R.S.E. and the Contractor, at the time prior to the O.P. application was fully informed, of the situation. A solution proposed by the A.P. and was elaborated by the R.S.E. to satisfactorily comply with the B.D.'s requirements was planned to rectify the inadequate headroom. However, the employer's instruction at that time was to leave it as it was in order to obtain the O.P. first. Further, the employer at the same time instructed that additional interiors and decorations could minimize the beam since the flat was sold already and the purchaser would accept."

85. These assertions by the authorized person were never denied by the defendant. On the evidence it seems to me that the inference can and should be drawn that the defendant was fully aware of the deficiency in the headroom of the beams in Flat 25A and yet failed to disclose this to the plaintiff before completion.

86. It was wrong and misleading for Mr Wong Pak Lam to say that the headroom problem only "recently" came to the defendant's attention when writing the letter to the Building Authority dated 12 December 2000. It is also plain from the minutes of the Building Committee II meeting on 13 February 2001 that the members of the Committee were of the mistaken view that the owners of Flat 25A and 25D recently appointed an authorized person "to conduct a study to rectify the irregularities". They were under the mistaken view that the report of Dr Shillinglaw was commissioned by the owners of Flat 25A and 25D which was not the case. Mr Wong Pak Lam was acting not for the plaintiff or the owner of Flat 25D but for the developer, the defendant. On a perusal of the minutes of the BC meeting, as Mr Cho pointed out, the Building Authority must have thought that the present owner had instructed Mr Wong Pak Lam to seek a tolerance of the breach by the Building Authority. The letter dated 3 March 2001 from Christine M. Koo & Co., former solicitors for the plaintiff, addressed to the Buildings Department made it plain that Mr Wong Pak Lam had not disclosed to the Buildings Department that Flat 25A had already been sold by the developer in 1997 and that Mr Wong Pak Lam's firm and clients had no locus standi to make any application for modification or submit any proposal on behalf of the registered owner.

87. In evidence Mr Cheng did not dispute that there was a breach of the Regulations but said that in view of the Buildings Department response to the letter of Wong Pak Lam they have tolerated the deficiency and would not go back on it. However, on his evidence his view was that on a balance of probabilities there would not be any enforcement action by the Buildings Department. He also expressed the view that it was unlikely that there would be any enforcement action by the Buildings Department on the deficiency of the headroom under the beams. That does not, however, satisfy the high standard of proof laid down in the authorities. Bokhary PJ and Sir Anthony Mason NPJ in Chi Kit Co. Ltd v. Lucky Health International Enterprise Ltd [2000] 3 HKCFAR 268 at page 282 said :

“ The burden is on the vendor to prove a good title to the very high standard of proof beyond reasonable doubt that the purchaser will not be at risk of a successful assertion against him of an incumbrance (MEPC Ltd v. Christian-Edwards [1981] AC 205 at 220). The vendor discharges his obligation if he shows to that standard that he is in a position to convey the estate or interest contracted to be sold 'without any blot, or possibility of litigation to the purchaser' (In re Stirrup's Contract [1961] 1 WLR 449 at 454)."

88. Had the true facts been disclosed to the Building Authority it may well be that it would not have tolerated the breach of the Regulations as it apparently did by their letter to Mr Wong Pak Lam. The high standard of proof to show that there was no risk of enforcement action cannot be satisfied in my view. The defendant cannot in my view rely on the tolerance letter to show beyond reasonable doubt that there is no risk of enforcement action by the Building Authority e.g. under the provisions of section 24 of the Building Ordinance. That being so, such a risk remains and is an incumbrance on the property. An 'incumbrance' in relation to land invariably means some claim to the property or charge which could be imposed upon the property (Active Keen Industries Ltd. v. Fok Chi Keung [1994] 1 HKLR 396 at page 409). I was also referred to Chi Kit Co. Ltd. where Bokhary PJ and Sir Anthony Mason NPJ said at page 281 :

“ Although the liability is not a charge on the unit itself, it is a liability which goes with ownership of the unit. It is a liability which is imposed by virtue of ownership of the unit. In Jones v. Barnett [1899] 1 Ch. 611 at 620, Romer J noted 'In Wharton's Law Lexicon I find 'incumbrance' defined as being 'a claim, lien, or liability attached to property' ' (our emphasis). Although the liability of the unit owner to meet a contribution is not charged on the unit, it binds the unit and therefore it can constitute a blot on the title or an incumbrance...."

89. It seems to me that there was a breach of the implied term (4) as the defendant failed to disclose the fact that there was an incumbrance on the title of the property. As I have said the defendant was fully aware of the deficiency in the headroom of the beams in Flat 25A before the occupation permit was issued and before the letter of notification to complete dated 22 September 1997. As to issue 6(e), this was a 'material circumstance' which the defendant was under a duty to disclose to the plaintiff before completion under the implied term (4). As to issue 6(g) the defendant was fully aware of the same before the occupation permit was applied for and before the said notification to complete dated 22 September 1997. As to issue 6(h) the defendant was in breach of the duty to disclose.

90. As to issue 5, the development is not an illegal structure but because of the incumbrance on the title of the property the defendant has failed to show that there is no risk of enforcement action.

Misrepresentation

91. In the present case there was completion of the sale and purchase. The contract contained in the agreement became merged with the conveyance i.e. in the assignment of the property to the plaintiff. It was the defendant's contention that the plaintiff cannot rescind unless he can obtain rescission on the ground of misrepresentation and mistake. I was referred to the judgment of Cheung J (as he then was) in Yuen Kit Yee v. Great Rich Development Limited [2001] 3 HKC 101, at page 106, where he said :

“ Although the pleading referred to the defendant's obligation to give vacant possession, I think, in substance and in truth, the plead (sic) is one of breach of covenant of title. The matter can be tested in this way : without going into the details, if the pipes were discovered before completion, the plaintiff would have been entitled to raise requisitions on title of these pipes. These pipes would constitute encumbrances and defects in the title of the defendant which would entitle the plaintiff not to complete. Although the sale had been completed which will preclude the plaintiff from rescinding the sale, nonetheless, she is entitled to recover damages on the covenant for title."

Cheung J then set out para. 353 of Vol. 42 Halsbury's Laws (4th Edn, Reissue), as follows :

“ 353. Damages, compensation or return of purchase money. After completion of the contract the transaction is generally at an end between vendor and purchaser, and no action can be maintained by either party against the other for damages or compensation on account of errors as to the quantity or quality of the thing sold, except in so far as the purchaser may be entitled to sue on the covenants for title, or on any express provision for compensation for errors of description, or in respect of any breach of a warranty or collateral agreement or for fraudulent or negligent misrepresentation. The purchaser cannot on the ground of adverse claims recover purchaser money which has been paid or detain money unpaid, but must rely on the covenants for title. In the absence of covenants for title or so far as these do not apply, he is without remedy in relation to his purchase money unless he can obtain rescission on the ground of misrepresentation or mistake."

92. Ms Cheng relies on the ground of misrepresentation to claim rescission. Paragraph 11 of the re-amended statement of claim pleads the matter as follows :

“ (1) By notifying the Plaintiff to pay the balance of the purchase price and to complete the sale and purchase of the Property, the Defendant expressly or impliedly represented to the Plaintiff that the Unit and/or the Property had been constructed with full compliance with the Building Plans, the Regulations and/or the implied conditions;

(2) The representation was not true. In truth and in fact, the Unit had not been constructed in compliance with the Building Plans and/or the Regulations. The Plaintiff repeats Paragraph 10 and the Particulars thereunder."

93. The letter giving notice to complete is the letter dated 22 September 1997 from Messrs Vincent T.K. Cheung, Yap & Co. to the plaintiff. By the said letter the defendant's solicitors informed the plaintiff as follows :

“ We refer to the Agreement for Sale and Purchase of the above property ('the Property') made between you and Victory Mark Investment Limited. It is stipulated, inter alia, in the said Agreement that the purchase of the Property shall be completed within fourteen (14) days of your being notified in writing that the Occupation Permit covering the Property has been issued and the Vendor is in a position validly to assign the Property to you.

On behalf of the Vendor, we hereby give you notice pursuant to the said Agreement that the Occupation Permit in respect of the Property (copy attached) has been issued by the relevant government authorities and the Vendor is in a position validly to assign the Property to you.

We are now instructed by the Vendor to request payment by you to us as solicitors for the Vendor by cashier order made in our favour being the balance of the purchase price in the sum of HK$5,134,500.00 within fourteen (14) days from the date of this letter i.e. on or before 6th October 1997 and to complete the purchase of the Property in accordance with the Agreement.

We would also like to advise you that :-

(a) the costs and disbursements payable in respect of the Assignment (and where applicable, Legal Charge) prepared by us amount to HK$41,955.00 (in our favour); and

(b) the management fee deposit, public utilities deposits and other charges amount to HK$24,090.00 (in favour of KSH GUARDIAN PROPERTY MANAGEMENT LIMTIED)."

94. I am unable to accept that the letter amounted to the pleaded representation. That is the only representation relied on as pleaded. There is no pleaded case relying on any representation made by Mr Chu before entering into the agreement. Although in paragraph 15 of his witness statement the plaintiff said that he relied on the representations (both express and/or implied) made in the said letter, it is clear from his evidence in cross-examination that the plaintiff understood that the letter was about going to the solicitors' office to pay the balance of the purchase price and to collect the keys and that was the full effect of what he understood the letter to mean. In my judgment the plaintiff has failed to establish the misrepresentation as pleaded. As to issue 4(a) the letter of notification to complete does not in my view make the pleaded representation. Issue 4(b) does not arise. The plaintiff fails to establish his case on misrepresentation.

Right to inspect

95. Mr Mok submitted that the plaintiff did not exercise his right to inspect Flat 25A before completion. That he had a right to inspect Flat 25A before completion cannot be doubted in the light of Twinkle Step Investment Ltd v. Smart International Industrial Ltd [1999] 4 HKC 441. Mr Mok submitted that as the plaintiff did not exercise his right to do so before completion he could not rescind the agreement and set aside the assignment after completion. Any remedy he has for breach of the agreement was in damages.

96. It is correct as Ms Cheng pointed out that Twinkle Step was decided in 1999. The plaintiff said, and I accept, that he was not advised that he had a right to inspect the premises before completion. Even at the time that Twinkle Step was decided there was no practice that a right of access was given to purchasers before completion. Ching PJ observed in Twinkle Step at page 450 that :

“ ... there was no evidence as to whether or not a right of access was or was not given as a matter of practice."

97. I am unable to accept Ms Mok's submission that the plaintiff should have exercised his right to inspect before completion which in this case took place on 8 October 1997. In my view, the fact that he did not inspect Flat 25A before completion does not also absolve the defendant from its duty to disclose under the implied term (4). As to issue 6(b), in my judgment the fact that he did not exercise his right to inspect Flat 25A before completion does not by itself deprive the plaintiff of the remedy of rescission.

Negotiations to re-purchase

98. It is clear from the evidence of the plaintiff, which I accept, that he found the headroom of the bedrooms unacceptably low when he inspected the flat after he had signed the assignment and completed the sale and purchase. He refused to sign the Acceptance Form and to accept the keys from the management office. He complained to Mr Chu about the height of the beams in the bedrooms. It seems that this did not take Mr Chu by surprise as he never disputed the validity of the plaintiff's complaints. The plaintiff said, and I accept, that in the course of the negotiations that he had with Mr Chu following his complaint the defendant, through Mr Chu, accepted that the plaintiff had a valid complaint and that the plaintiff was entitled to and did rescind the sale of Flat 25A.

99. The amount of compensation for the defects in Flat 25A was the subject of negotiations between the plaintiff and Mr Chu and eventually the sum of $1 million was agreed as the compensation to be paid in addition to paying the plaintiff the original purchase price for Flat 25A. Thus it was agreed that the defendant would re-purchase Flat 25A for the total sum of $7,096,000 being the sum of $6,096,000 for the original purchase price paid by the plaintiff for Flat 25A and the sum of $1 million as agreed compensation to be paid to the plaintiff. I accept that, as the plaintiff said, Mr Chu and the plaintiff agreed that 10% downpayment in the sum of $709,600 was to be paid first and that a company in The Kwong Sang Hong group would re-purchase Flat 25A from him. Messrs Vincent T.K. Cheung & Yap were instructed by the defendant to prepare the formal agreement for sale and purchase for the re-purchase of Flat 25A.

100. At that stage in early December 1997 the plaintiff was advised to take separate legal advice and Messrs Joseph P.W. Tang were instructed to act on his behalf.

101. As directed by the defendant the purchaser was K'ang Tao Investment Ltd, a subsidiary of The Kwong Sang Hong International Ltd. A deposit of 10% of the purchase price was to be paid and this was paid by cheque sent to the plaintiff's solicitors. The name of the purchaser was later changed to Best Champion Incorporated, a BVI company, at the request of the defendant.

102. The evidence shows that none of the discussions that the plaintiff had with Mr Chu were ever expressed to be "without prejudice" discussions and on the evidence I find that these were open discussions and not "without prejudice" discussions. However, the correspondence between the solicitors were marked "subject to contract" so that until the formal agreement was signed the agreement between the plaintiff and the defendant was "subject to contract". The formal agreement was never signed. After repeated demands, the defendant's nominee failed to execute the formal agreement for sale and purchase. By letter dated 7 July 1998 the defendant's solicitors stated that they were instructed by their client that the transaction had fallen through and asked for the return of the cheque representing the 10% deposit. This was returned by the plaintiff's solicitors who also demanded the return of the title deeds which were duly returned. As the matter was "subject to contract" the plaintiff is, of course, unable to sue on the agreement as the formal agreement was never signed. However, the agreement reached with Mr Chu shows that the defendant admitted that it was in breach of the agreement and that the plaintiff was entitled to rescind the agreement for the sale of Flat 25A.

Was there affirmation of the agreement?

103. Mr Mok submitted that the plaintiff affirmed the purchase of the property by what occurred in relation to the negotiations to re-purchase by the defendant. It is clear from the evidence of the plaintiff, which I accept, that when he went to inspect Flat 25A after paying the balance of the purchase price and executing the assignment to him of the property he refused to sign the Acceptance Form mainly because of the low beams in the bedrooms in Flat 25A. He wanted to rescind the agreement for the purchase of Flat 25A and complained to Mr Chu about the matter. Mr Chu did not dispute the validity of his complaints and agreed to re-purchase Flat 25A. I have no doubt that this is what he wanted to do namely, rescind the agreement for the purchase of Flat 25A and that he entered into negotiations on an open basis and not on a "without prejudice" basis with Mr Chu. As the plaintiff said in his witness statement which was treated as his evidence-in-chief, he said at paragraph 20 :

“ I demanded rescission of the sale of the Unit and said that the Defendant should re-purchase the Unit and pay me damages."

104. It is abundantly clear from the witness statement that 'the Unit' was Flat 25A without the car park. At paragraph 20 the plaintiff was talking about Flat 25A without the car park. He then described the negotiations about the compensation to be paid which was eventually agreed at $1 million.

105. Paragraph 28 of his witness statement is also important. He said this :

“ After further negotiations, Mr Chu asked me and my father to attend his office again towards the end of November 1997. Mr Chu re-iterated the stance of the defendant and stood firm on its bottom line, namely to re-purchase the Unit from me and pay HK$1 million as damages in full and final settlement of my claim under the Agreement. I wished to have the matter settled as soon as practicable and not to have it dragged on for too long, so I agreed to these terms." (emphasis added)

106. It is clear from this evidence that the agreement that he reached with Mr Chu was that the defendant would re-purchase Flat 25A and give the plaintiff $1 million damages which the plaintiff accepted in full and final settlement. No mention of the car park was ever made as part of the agreement to re-purchase by the defendant in the plaintiff's witness statement or in his evidence-in-chief.

107. In cross-examination and in re-examination, however, the plaintiff said that the car park was also to be re-purchased but at a later stage. This was to save stamp duty. This was what Mr Chu told him and he agreed. I do not believe this part of the plaintiff's evidence. I do not believe him when he said that he and Mr Chu agreed that the car park would be re-purchased at a later stage. He contradicted his own witness statement where he clearly talked about entering into an agreement with Mr Chu for the defendant to re-purchase Flat 25A without the car park and for the defendant to pay him $1 million in full and final settlement of his claim under the agreement. He was also evasive about the discussions and the agreement to re-purchase the car park when cross-examined on these matters. The plaintiff said that he had told his solicitors about the re-purchase of the car park as well when his witness statement was prepared. I do not believe him. It is inconceivable that his solicitors would have omitted this from his witness statement if he had told them about it.

108. It is also important to bear in mind that in the contemporaneous correspondence between his solicitors and the defendant's solicitors over the agreement to re-purchase Flat 25A there was never any mention of the agreement to re-purchase the car park. The correspondence between the solicitors made it clear that the subject matter of the re-purchase by the defendant's nominee was Flat 25A only. The car park was never mentioned by the solicitors. The correspondence between the solicitors proceeded on the basis that the re-purchase involved only Flat 25A until the transaction was called off in July 1998. After the re-purchase was called off the plaintiff authorized his solicitors to demand the return of all the title deeds to Flat 25A and he was thus asserting his rights as owner of Flat 25A. What happened in fact demonstrates that the plaintiff affirmed the purchase of Flat 25A and the car park but because of the defects of the low headroom of the beams in the bedrooms, the plaintiff and the defendant negotiated for the re-purchase by the defendant of Flat 25A alone without the car park with compensation to be paid to the plaintiff which was agreed at $1 million.

109. I am satisfied and find that the plaintiff did not reach any agreement about the car park nor did he discuss the re-purchase of the car park with Mr Chu. I find that the car park was never part of any agreement to re-purchase by the defendant. The price agreed was the price that he had paid for Flat 25A plus $1 million compensation making a total of $7,096,000. On the facts as I have found, the plaintiff kept the car park and he never elected to rescind that part of the agreement relating to the sale of the car park. It seems to me that the plaintiff has affirmed the agreement and the assignment as he kept the car park. I find that what he did agree with Mr Chu was a new agreement of re-sale to the defendant of Flat 25A only without the car park which was "subject to contract". He has therefore affirmed the purchase of the property.

110. As is stated in paragraph 25-002, Vol. 1, Chitty on Contract, 28th Edn :

“ Affirmation must be total; the innocent party cannot approbate and reprobate by affirming part of the contradict and disaffirming the rest, for that would be to make a new contract."

111. It seems to me that one cannot have a partial rescission of a contract. For there to be rescission there must be restituto in integrum and as the plaintiff kept the car park there cannot be restituto in integrum. Having affirmed the agreement, the plaintiff is not entitled to rescission. I find that rescission as a remedy is not available to the plaintiff and his only remedy is in damages.

112. Ms Cheng submitted that the evidence showed that the plaintiff elected to rescind the agreement when the plaintiff complained to Mr Chu on or about 8 October 1997 or 10 October 1997 when the plaintiff met Mr Chu and repeated his complaints. Ms Cheng also referred to a letter from the defendant to the registered structured engineer, James Lau and Associates Ltd., dated 8 December 1997 stating that :

“ You are informed that the purchaser of the captioned has rescinded the agreement to acquire the unit upon discovering the beam in the master bedroom does not meet the minimum height requirement of 2300 mm, in accordance with statutory building regulations.

Compensation has since been paid to the purchaser by us, and we put on record herewith that we reserve the right to claim for all loss and damages from you, in this respect."

Of course, as it turned out, compensation was not paid as the defendant called off the transaction in July 1998.

113. This letter suggests that the defendant accepted that the plaintiff had rescinded the agreement to purchase Flat 25A but in fact it shows that the plaintiff had elected to rescind part of the agreement only namely, that part relating to Flat 25A. There was no mention of the car park. As such, this was an ineffective rescission and, as I have found, the plaintiff in fact affirmed the agreement. This letter does not advance the plaintiff's case any further.

114. As to issue 7, the plaintiff has affirmed the purchase by what occurred in relation to the negotiations to re-purchase. As to issue 8, the plaintiff is not entitled to rescind the agreement or set aside the assignment but he is entitled to recover damages.

Damages

115. The plaintiff is entitled to damages for breach of the agreement as the headroom of the beams in the bedrooms were below the statutory minimum of 2.3 m.

116. The measure of damages is the diminution in value caused by the low headroom under the beams in the rooms as constructed.

117. The evidence on the valuation of Flat 25A and the diminution in value caused by the low headroom under the beams was given in the reports of Mr Ng, who gave evidence on behalf of the plaintiff, and the reports of Mr Lynch, who gave evidence on behalf of the defendant. Mr Ng used the JLW index for luxury properties in arriving at his valuation whereas Mr Lynch used his own index described as the Lynch index in these proceedings. This was to use comparables in Wilton Place itself. Mr Ng felt that the Lynch index concentrating only on Wilton Place with insufficient comparables for each of the months was not something meaningful as an index to be used as a reliable guide to the property market in Hong Kong for valuation purposes. His view was that the JLW index for luxury properties was a more reliable index to use for property trends in Hong Kong. Mr Lynch did not regard Wilton Place as a luxury property and hence did not regard the JLW index for luxury properties to be a reliable index to use. Mr Ng was formerly with Jones Lang Wooten and was familiar with the JLW index which used a mixed basket of luxury type developments in Hong Kong some of which were smaller sized units as well.

118. Having heard the experts, I prefer the views and the approach of Mr Ng to that of Mr Lynch. I accept Mr Ng's view that Wilton Place was a luxury development although the flats were small and that the JLW index for luxury properties also included luxury developments of small flats. It seems to me to be more reliable to use the JLW index for luxury properties in arriving at a valuation for Flat 25A as Mr Ng did. I prefer Mr Ng's evidence to that of Mr Lynch.

119. It was agreed that the date for the valuation of Flat 25A should be 8 October 1997, this being the day that the plaintiff lodged his complaints with the defendant and refused to accept Flat 25A. The agreed basis for valuation was on a vacant possession basis. It is common ground that property values rose from September 1996 when the plaintiff purchased the property to 8 October 1997. The effect of the Asian financial crisis was only felt later on in late October 1997 and thereafter with falling property and stock prices in Hong Kong.

120. For the reasons given by Mr Ng in his reports and as elaborated by him in his evidence when he also corrected errors in his reports, he valued Flat 25A as a typical Unit A flat of similar floor to ceiling height, standard of fitting, finishings and beams similar to those in a typical Unit A type flat in Wilton Place at $8,564,057 using the JLW index for luxury properties with the adjustments made as set out in his reports and using three Unit A flats as comparables. I accept his valuation.

121. Mr Mok submitted that Mr Ng's valuation should be rejected as he compared the value of Flat 25A with Flat 23A which was a wrong basis to do the valuation. He should have valued it on the basis that the beams in Flat 25A were less than 2.3 m headroom and not as a comparison between Flat 25A and Flat 23A where the beams arrangement was different to that in Flat 25A. I am unable to accept Mr Mok's submission. Mr Ng was cross-examined about this. It is clear from his evidence as well as in his re-examination that if the beams in the bedrooms at Flat 25A were there but were about 6 inches shorter that would not affect his valuation of Flat 25A nor his opinion on the diminution in value. I accept his evidence.

122. In working out the diminution in value caused by the depth of the beams in the bedrooms at Flat 25A Mr Lynch's approach was to take the area immediately under the beams to arrive at a diminution in value for each of the rooms. In my view that was an erroneous and much too narrow an approach. It is not, as Mr Ng said and as I accept, only the area immediately under the low beams that are affected. It is the enjoyment of the whole room that is being affected particularly where, as in Flat 25A, the rooms are small. Mr Ng's approach was that the whole room was affected whereas Mr Lynch's approach was more focused on the area immediately under the beams being affected. In exhibits D5 and D5A Mr Lynch set out what the diminution in value was as a percentage of the whole room in respect of each of the bedrooms. The total diminution in value that he arrived at was $521,614.

123. Mr Ng's approach in arriving at the diminution in value is much preferred. I have no doubt, having been to the flat at the site visit, that the enjoyment of the whole room would be adversely affected and not just the area immediately below the beams. The rooms are small and the headroom of the beams was insufficient and below the statutory minimum of 2.3 metres. The plaintiff made the point that he could touch the beams with his stretched hand and the plaintiff is not a particularly tall man. There can be no dispute that the beams were unacceptably low in the master bedroom and the Bonham Road bedroom which clearly affects the enjoyment of the whole room and not just the area under the beams.

124. In exhibit P12 Mr Ng elaborated on his evidence on the diminution in value. In arriving at the same he has taken the agreed internal floor area of Flat 25A and each of the bedrooms. He arrived at the unit rate for assessment of diminution in value by dividing the value of the flat on 8 October 1997 at $8,564,057 with 487.72 sq. ft being the internal floor area of Flat 25A to arrive at the unit rate of $17,559 for the internal floor area. He arrived at the diminution in value as follows as set out in exhibit P12 :

“ Master-bedroom:
103.67 sq ft x $17,559 x 75%	=	$1,365,256
Bedroom 2 (Bonham)
43.92 sq ft x $17,559 x 50%	=	$385,595
Bedroom 3 (Park)		$140,252
53.25 sq ft x $17,559 x 15%	=
Total diminution in value		$1,891,103	"

125. I accept Mr Ng's approach. However, in relation to each of the rooms where he has worked out the diminution in value, I am unable to accept the percentage of diminution used. This is because Mr Ng regarded the master bedroom as a cockloft and discounted the value of 75% of the room. I am unable to accept that the master bedroom can properly be described as a cockloft. The beams were low and adversely affects the enjoyment of the whole room but in my view the master bedroom cannot be described as a cockloft. In my view he has given an excessive percentage of diminution in the room for that reason. I think a reasonable percentage of diminution in value for the master bedroom should be 50%. I am also unable to accept that the diminution in value for the Bonham Road bedroom should be as high as 50%. He used the 75% diminution in value of the master bedroom as a pointer to arrive at the 50% diminution for this room and that in my view was excessive. A reasonable percentage of diminution of value for this room should be 25%. As far as the Park Road bedroom is concerned, on the evidence of Mr Cho there can be no valid complaint that the headroom of the beam in that room was below the statutory requirement of 2.3 m and therefore there should be no diminution in value for that room. I, therefore, find, using Mr Ng's approach but adjusting the percentages as set out above, that the diminution in value because of the depth of the beams in the master bedroom and the Bonham Road bedroom should be as follows :

Master bedroom : 103.67 sq. ft x $17,559 x 50%	=	$910,170
Bonham Road bedroom :
43.92 sq. ft x $17,559 x 25%	=	$192,797
Total diminution in value due to the low beams :		$1,102,967

126. The plaintiff is also entitled to the cost of replacing the hardwood board on the window sill on each bay window making a total of $6,000 ($1,500 x 4) on the evidence of Mr Cheng which I accept.

127. As I have found, the defendant was also in breach of the implied term (3) and the plaintiff is also entitled to the sum of $45,000 being the estimated costs of the additional lighting on Mr Cheng's evidence which I accept.

128. The plaintiff is also entitled to the sum of $5,000 for putting in additional security bars along the bay windows as estimated by Mr Ng.

Summary

129. The total damages awarded to the plaintiff is $1,158,967 made up as follows :

Total diminution in value due to the low beams	$1,102,967
Cost of replacing hardwood board on
window sill of bay windows	$6,000
Cost of installing additional lighting system	$45,000
Cost of additional security bars along bay windows	$5,000
	-------------
Total	$1,158,967

130. I give judgment to the plaintiff for damages in the sum of $1,158,967.

131. In her closing submissions Ms Cheng submitted that interest should be awarded from date of writ, 25 May 1999. I also award interest on the said sum from 25 May 1999 until judgment at 1% above prime rate and thereafter at judgment rate until payment. I also make an order nisi for costs of the action in the plaintiff's favour to be paid by the defendant.