CHAN YEUK YU AND ANOTHER v. CHURCH BODY OF THE HONG KONG SHENG KUNG HUI AND ANOTHER

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CONSTRUCTION AND ARBITRATION PROCEEDINGS

NO.83 OF 1999

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JUDGMENT

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1. By these proceedings the plaintiffs, inter alia, seek to rescind the agreement they entered into in December 1997 whereby they purchased an apartment known as 6A, Tower 10, Deer Hill Villas, Tai Po, New Territories ("the property"). As this was the top floor of the building, the property included the roof space. They paid $22,871,000.

2. A feature of the property was that it contained an internal spiral staircase which provided access from a central part of the apartment to the roof space above. A second means of access to the roof was by a more conventional staircase which was situated just outside the front door in the lobby area.

3. The entire litigation concerns the internal spiral staircase. The plaintiffs' case is that because of its design they are entitled to rescind the contract and be repaid the purchase price. In the pleadings, damages are claimed as an alternative. However, Mr Warren Chan SC, for the plaintiffs, abandoned the claim for damages on the second day of the trial. Only rescission and discharge of the formal agreement is now claimed.

4. Deer Hill Bay is a large and impressive development at the top end of the residential market. It was completed in late 1997. It comprises three different styles of residence. The least expensive are flats in 10 storey blocks, the most expensive are individual houses. The subject property is the middle price band, they are more spacious flats in six storey blocks. There are five such blocks with four flats per storey. Each of the top floor flats (of which there are 19 altogether) have a roof space. Each of the top floor flats has an identical internal spiral staircase.

5. At the invitation of the plaintiffs, a site visit was arranged. I was invited to inspect the staircase. I ascended it and descended it and viewed the flat, the roof space, the development and the surroundings. This case will not be determined by any personal view I formed as a result of the site visit. The observations I made nonetheless assist me in evaluating the evidence, particularly the expert evidence.

6. In short, the plaintiffs' claim has three bases. In order to succeed, they only need to prove any one of the three to the required standard.

7. Firstly, they say that by virtue of a statement contained in the advertising brochure, as supported by advertisements in the media, the defendants have been guilty of misrepresentation which entitles the plaintiffs to rescission.

8. Secondly, they say that clause 28(1) of the formal agreement has been breached by the defendants and the breach has been accepted by the plaintiffs. Thus the formal agreement should be discharged.

9. Thirdly, there have been breaches of implied terms by the defendants which should also result in the discharge of the agreement.

10. I will deal with each of these issues. Before doing so, I set out a number of factors which are not in dispute:-

The three heads of claim

(1) Misrepresentation

11. The pleaded case on misrepresentation is as follows:-

12. The issues which fall to be determined arising out of this pleading are as follows:-

13. The express representation upon which the plaintiffs rely is the phrase "regal surroundings for the select few". These words occupy a single page in a very expensive looking and glossy brochure. They are the only words specifically relied on. On subsequent pages are expressions such as "your own private haven", "gateway to luxury and prestige", "refreshing the mind and body" and so on. Opposite each such expression is a photograph. The photograph opposite "regal surroundings for the select few" is an aerial photograph of the entire development nestling in a verdant hillside setting.

14. The "select few" is plainly a reference to the small number of people who have $20 - $30 million to spend on a residential flat. The "regal surroundings", equally plainly, is a reference to the atmosphere intended to be created when being in the entire development. The plaintiffs do not contend it should be like a palace for royalty but that by the use of such words the property, by implication, would be constructed to a very high standard of luxury.

15. It is contended that solely because of the design of the spiral staircase, the defendants have been guilty of misrepresentation. It is necessary at the outset, therefore, to examine in a little detail what the complaints about the staircase are because there is nothing else in the flat, or on the 6^th floor, or in the building, or in the amenities or surroundings which are said to be inconsistent with what was meant by "regal surroundings".

16. In general terms, the complaint is that the staircase is too narrow, too steep, has too many steps and the steps are too small. In particular, it does not meet the standard laid down by the B.S. in four respects. They are (comparing them with the B.S. for "small private stairs" which I consider to be the appropriate comparison):-

17. There is no doubt that it is a narrow and steep spiral staircase. The two experts expressed different opinions about it. At this stage it is sufficient to note that Mr Andy Fong, for the plaintiffs, suggested that the combined effect of the deficiencies rendered the staircase unsafe from a user point of view and, as a consequence, the flat was "not fit for residential use". When cross-examined by Mr R. Tong SC, he rejected the suggestion put to him that this was a "gross exaggeration". However, having heard both experts the court prefers the more realistic assessment of the defendant's expert, Mr D. Connell, who stated, inter alia, that:-

18. Having identified the deficiencies in the staircase, I return to the issue of whether the claim for misrepresentation is made out. I have come to the conclusion, for the reasons which follow, that the plaintiffs have failed to prove their claim under this head.

19. Taking the development as a whole, the expression of expectation that, from a residential point of view, it will be regarded as "regal surroundings for the select few" cannot, in my judgement, be criticised. I consider it to be a representation of a genuinely held expectation or contention by the developer and, as such (even if it were false which I do not think it is), would not be an actionable misrepresentation.

20. The plaintiffs' reliance on the remarks of Lord Denning in Esso Petroleum Co. Ltd v. Mardon where he said:-

"... if a man, who has or professes to have special knowledge or skill, makes a representation by virtue thereof to another--be it advice, information or opinion--with the intention of inducing him to enter into a contract with him, he is under a duty to use reasonable care to see that the representation is correct, and that the advice, information or opinion is reliable. If he negligently gives unsound advice or misleading information or expresses an erroneous opinion, and thereby induces the other side to enter into a contract with him, he is liable in damages. ..."

is misplaced. That case concerned a representation which was a serious opinion given negligently. It amounted to a breach of warranty. In our case there is no claim that the representation was negligently or dishonestly made. In our case only a misrepresentation of fact, not opinion, can be relied on.

21. Furthermore, taken in its context, namely on page 4 of a 27 page glossy and colourful sales brochure, I find it difficult to conclude that it is any more than "mere puff" or "sales pitch". It is vague promotional language which, in any event, is not false.

22. Moreover, the evidence does not satisfy me that the plaintiffs placed particular reliance on the express representation in the brochure or the implied representations in the media when they decided to purchase the property. In the 1^st plaintiff's two letters to the developers, dated 20 January 1999 and 9 February 1999, no references are made to either the brochure or comments in the media. The letters, of course, deal at length with the complaints about the staircase and his general reasons for wanting to buy the property but it does not say he was misled by the promotional material.

23. The 1^st plaintiff describes himself as a merchant in the construction industry. In his work he is no stranger to the work of architects and surveyors. He has been in the business for over 20 years. He knew that detailed plans and layouts, which he could easily understand, were readily available for inspection. The staircase as built is entirely in compliance with the approved plans. All this, persuades me that the defendants' submission on the issue of misrepresentation should be accepted. They submit, and I agree, that it can be inferred from the evidence that the plaintiffs were disappointed with the spiral staircase when they first saw it but have since exaggerated its importance and significance. After the initial foray into the possibility of moving or rebuilding this particular staircase proved to be forlorn, they saw it as their only escape route from their contractual obligations.

(2) Alleged breach of Clause 28(1)

24. Clause 28(1) of the agreement provides as follows:-

"The Vendor shall at its own cost and as soon as reasonable practicable after receipt of a written notice served by the Purchaser within 6 months of the date of completion of the sale and purchase under Clause 5 remedy any defects to the Property ... caused otherwise than by the act or neglect of the Purchaser."

25. This claim gives rise to the following issues:-

26. I have already made findings concerning the suitability of the staircase, when highlighting the complaints about it, under the previous head of claim, namely misrepresentation. Its "fitness for use" is of special significance under this head of claim.

27. There is no dispute that the staircase was approved by the Building Authority at all its stages of design and construction. On 26 June 1998, the Buildings Department wrote a letter to the architect, listing 29 "contraventions" and "discrepancies" which had to be attended before an occupation permit would be issued. There were none relating to the staircase. Mr Warren Chan SC for the plaintiffs, points out that there are no specific provisions for such staircases in any ordinance or regulations, therefore how can the Building Authority say there has been a "contravention". This, I think, misses the point. The point is that the letter demonstrates the detailed attention and meticulous care exercised by the Buildings Department before issuing an occupation permit. A dangerous or unfit staircase would not have escaped their notice, particularly, as it was to be repeated 19 times in the "roof" flats of Deer Hill Villas. It is not contended by the defendants that the issuance of the occupation permit and certificate of compliance is conclusive evidence of safety and fitness. It is, nonetheless, and I so find, highly persuasive.

28. In this context, it is worth quoting the unchallenged evidence of Mr Cheung Kwong-wing, the registered architect and authorized person responsible for this staircase. He was an impressive witness:-

29. The fact that no other owner or occupier has made any complaint about the staircases being dangerous or unfit for use or even inconvenient is also attested to by Mr William Kwok, the development's sales manager. Again, the lack of complaint is not conclusive evidence of fitness or suitability but it is relevant and reasonable to weigh it in the balance in the defendants' favour. This simple point was made by Ralph Gibson LJ in Green v. Building Scene Ltd [1994] P.I.Q.R. at p.268:-

"Not one person concerned with the reconstruction of the premises or with the grant of approvals regarded this stairway as constructed as dangerous. That is not conclusive. On occasions all persons concerned may be affected by the same folly. The fact is however is of much force ..."

30. The plaintiffs' case is based on the argument that because the Ordinance and Regulations do not deal with a staircase such as this, then it is outside the jurisdiction of the Buildings Department. The submission is that the Buildings Department is only a law enforcement body, and in relation to this staircase there is no law to enforce, therefore their approval is irrelevant. With respect, I find this argument lacking. It overlooks the fundamental duty:-

"To provide for the planning, design and construction of buildings and associated works; to make provision for the rendering safe of dangerous buildings and land; and to make provision for matters connected therewith."

as is set out in the preamble of the Building Ordinance. It cannot be right to say that the Buildings Department would turn a blind eye to an unsafe spiral staircase because it has no jurisdiction over it due to the lack of specific provisions in the Ordinance.

British Standards ("B.S.")

31. On the issue of suitability and user safety, the plaintiffs do not say that the four failures to comply with the B.S. per se render the staircase unsafe. It is accepted that neither the B.S. nor any other standards apply in Hong Kong. However, the fact that this staircase, in certain respects, does not meet the B.S. is evidence that it falls short, so it is argued, of an acceptable minimum reasonable standard and as a result makes the entire flat "not fit for residential use".

32. Again, with respect, I find that the plaintiffs' submission flawed, in particular, for the following reason. The plaintiffs say that the B.S. have a long history in Hong Kong and in many many areas are specifically adopted by the trade. Therefore, the B.S. concerning small private internal spiral staircases should be applied to ensure a safe and suitable end product. In my judgment, the very fact that the B.S. have not been adopted for such staircases in Hong Kong is a point in favour of the defence. Like many other B.S. they could have been but have not been. It cannot be seriously suggested that not adopting them was an oversight. The more realistic conclusion is that they were considered but it was not considered necessary to adopt them for Hong Kong. In any event, even in the UK, breaches of the B.S. are not necessarily fatal. The proper approach is set out in the case of Green (above):-

"Per Staughton L.J. The evidence of failure to comply with the regulations or the relevant British Standard was evidence which the Court must certainly take into account. It represents the current professional opinion as to what is desirable in order that accidents should be avoided. But it is one thing to lay down regulations and standards, with that objective, and another to define what is reasonably safe in all the circumstances of a particular case."

33. It is undoubtedly true that internal spiral staircases in Hong Kong flats are rare. Only seven to eight comparables could be found, which were considered in the course of this case. On the one hand, it is true that of the comparables the subject staircase was the smallest. On the other hand, every single comparable failed to meet the B.S. in one respect or another. These comparables do not take the issue very much further. One must not lose sight of the fact that, by their very nature, spiral staircases are intended to be economic on the use of floor space and provide vertical access. Any staircase is inherently dangerous and only usable by the able bodied. At least, with a narrow spiral staircase, there is an inbuilt safety factor that it is impossible, or at least virtually impossible to fall forwards from top to bottom as is possible with a conventional flight of stairs.

34. Further factors, advanced by the defence, go towards diluting the plaintiffs' case that this staircase is unsafe for use and, as a consequence, the accommodation is unfit for residential use. Such factors include the following. Firstly, to criticise the staircase on the basis that it cannot accommodate double file usage is, in my judgment, no criticism at all. Such staircases are invariably for access from one floor to the floor above only and are invariably intended for single file usage. A person at the bottom would always wait for someone descending to get to the base before starting to ascend. Secondly, a narrow staircase, it seems to me, is intrinsically safer than one which is too wide. There is less empty space to fall into. Thirdly, every other flat in the Deer Hill Bay development is fit for residential use. The argument that the existence of this internal staircase renders the property unfit is, in my judgment, unsustainable. The additional feature which this flat has, namely, the roof space, is not rendered useless even if the occupants find the staircase awkward, inconvenient or even unsafe. There is an alternative staircase right outside the front door.

35. Thus, I find as a fact that the first issue to be determined under this second head of claim (s.28(1)) has not been made out in the plaintiffs' favour. If the plaintiffs have not satisfied the court that the staircase is defective, in the sense that it is unsafe from a user point of view, then a breach of s.28(1) cannot arise.

36. If I am wrong about the suitability and fitness of the staircase, the question, does s.28(1) apply, still needs to be addressed. The parties do not agree as to its construction and application.

37. It imposes an obligation, on the vender to "remedy any defects to the Property", in certain circumstances. The plaintiffs' argument is that "defects" includes not only defects as to workmanship and materials but also defects as to design. The defence case is that s.28(1) imposes a liability to carry out repairs and effect remedies where the workmanship or actual construction has been defective or incorrect materials have been used. The defence rely on firstly, the agreement itself and, secondly, the case of Lam Man Fung Mamie v. Active Benefit Ltd, HCA11556/97.

38. As to the terms of the agreement itself, it is submitted, with some force, that, read together with clause 29 which provides as follows:-

what is intended is a provision which creates a liability to repair only (which continues after completion) which would give rise to a damages claim only, not rescission or discharge as is claimed here. In further support the defence point to other terms in the contract where liability for rescission is expressly provided for (s.4(3) and s.4(4)(a)).

39. In the Lam Man Fung case (above), Chung J was confronted with exactly the same clause. In that case, he concluded that "defects" were confined to defects of workmanship and materials, not design. I agree. It should further be noted that in the Lam Man Fung case, a roof space was unusable because it was not fenced. Only damages, not rescission or discharge, were claimed and no breach of clause 28(1) was found. Mr Warren Chan seeks to distinguish this case on the basis that it concerned a property of much lesser value. I do not regard this difference as a reason for coming to a different conclusion.

40. Mr Chan's further submissions on clause 28(1) depended on the court's finding that it covered design defects. He went on to argue that the term was an "intermediate or innominate" term, a breach of which could result in rescission. In view of my findings hitherto, I do not consider it necessary to determine whether, if it were a "defect", this staircase would be a sufficiently serious breach of an intermediate term so as to justify the relief of rescission as opposed to damages.

(3) Implied terms

41. Paragraph 3 of the Amended Statement of Claim pleads that three terms are to be implied in the contract as follows:-

The claim that these implied terms have been breached gives rise to two issues:-

42. This case is primarily concerned with implied term (c). I have already dealt with some of the issues in the context of issue (a) under claim (2), i.e. whether the staircase had been designed to a suitable standard and, if not, was it a defect within s.28(1).

43. Under this head of claim, the plaintiffs contend the failure to comply with the B.S. was a breach of implied terms. Mr Chan submits that the term should be implied into the contract, such an implied term is an intermediate term which has been seriously breached by the staircase rendering the property not fit for habitation which is a repudiation by the defendants, accepted by the plaintiffs.

44. I will deal with Mr Tong's submissions in answer to this claim in a little greater detail as I have come to the conclusion that they are entirely correct. The two limbs of his defence are (i) the terms cannot as a matter of law be implied as they are inconsistent with the express terms and (ii) even if they were implied they have not been breached.

45. By a detailed written contract the defendants agreed, inter alia, to:-

46. All this they did.

47. There is no dispute as to the meaning of "development" or "the property" or "building plans", etc. The spiral staircase plans were finalized and approved on 23 October 1997. If the developer had not built a staircase in accordance with the detailed specifications which had been approved before the plaintiffs entered into any agreement, they would have been in breach. It was a term of the contract that that the staircase would be constructed exactly in accordance with drawing number 3E-358.

48. The express agreement was to build a particular staircase and yet it is contended that the implied agreement was not to build it, but to build a different one. The term which the plaintiffs ask to imply into the agreement is inconsistent with the express terms of the agreement. Mr Tong relies on Lynch v. Thorne [1956] 1 WLR 303 CA which he submits is on "all fours" with the present case. To all intents and purpose I agree. Mr Chan seeks to distinguish it on the basis that our contract defines "building plans" as "general building plans and specifications ... and includes approved amendments thereto" whereas in Lynch v. Thorne, there was no provision for any amendment. The only amendment in our case was the change from 24 steps to 25. This change was effected before the contract.

49. On this issue, Mr Chan has referred the court to Summers v. Salford Corporation [1943] AC 283 HL. He relies on points of principle from the highest authority. However, the case is distinguishable on both the facts and the legal issues. Factually, it is a personal injury case involving an elderly lady who was injured in her small house in Salford, on the outskirts of Manchester. She had been a tenant for over 30 years. The Second World War was at its height in Europe. All a far cry from a contractual dispute concerning a $22 million flat in property driven Hong Kong on the cusp of the millenium. The legal issues concerned a tenancy which constituted an exception to the principle of caveat emptor and the term in issue was one implied by statute.

50. In short, I find Lynch v. Thorne to be of greater assistance. In that case the defendant, a builder, built a house for the plaintiff according to the agreed plans and specifications. They included a wall of 9 inches thick on the south side. This wall, as it turned out, did not keep out the weather and an entire room became unfit for human occupation.

51. At first instance, the judge found that the builder had carried out the work exactly according to the agreed plans and specifications but found for the plaintiff on the basis of a breach of an implied terms that the house should be fit for human habitation. The defendant builder successfully appealed. Lord Evershed MR said this:-

"For the plaintiff one cannot help feeling a great deal or sympathy; but a grown adult man is presumably capable of taking competent skilled advice if he wants to; and if he elects not to do so but to make a bargain in precise terms with someone else, then, though no doubt he does rely upon the skill of the other party in a sense, he only does so in the sense that he assumes that the other party, as was the fact in this case, will do the job he has promised to do competently and, at best, that he believes that the house he is going to build will be a habitable house. But that is far short of importing into the transaction any such overriding condition or warranty as that for which Mr. Garland has contended. It would appear almost to involve the result that because the plaintiff elected not to take advice himself, therefore there was some duty of care thrust upon the defendant which should more properly have been borne by somebody engaged by the plaintiff. These considerations seems to me to find no place in the authorities, as I have understood them, and since, as I think, there was here what Romer L.J. has called an express contract as to the way in which the house was to be completed, I can find no room for an implied warranty, the only effect of the operation of which would, so far as I can see, be to create an inconsistency with the express language of the bargain made."

52. In the present case, the 1^st plaintiff is very familiar with the building industry. Moreover, the flat itself is plainly and obviously habitable. In my judgment, the overall facts leave one far from the threshold where such implied terms would be permitted.

53. For these reasons, I find that there is no room for the implication of the terms sought.

54. The second issue ((b) on page 17 (supra) under this third head of claim has already been dealt with, inferentially, under claims (1) and (2). The answer must be that even if the terms were to be implied, on the facts of the case, they have not been breached.

55. The sympathy referred to by Lord Evershed in Lynch v. Thorne is felt in this case also. The plaintiffs have bravely taken on weighty and wealthy opponents (I refer to the developer, not the named vendor). The plaintiffs' arguments have been skillfully and attractively advanced by Mr Chan. However, I find that the measure and quality of the plaintiffs' bravery is not matched by the measure and quality of their case. Mr Tong's response to the claim, also skillfully and helpfully presented, leaves the plaintiffs well short of discharging the burden on them to prove their case.

56. The plaintiffs' claims fail. Accordingly, they must pay the defendants' costs.