TAO YUN COMPANY LIMITED v. WOO HAI LING JIMMY

(CONSOLIDATED PURSUANT TO THE ORDER OF MASTER CLAY HEREIN DATED 10TH JANUARY 1985)

1984, No. 6530

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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JUDGMENT

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1. The Plaintiff Company which was then in the process of erecting a building known as the Wah Kwong Regent Centre ("the Regent Centre") in Queen's Road Central, on the 28th September 1981 contracted to sell two units therein, Nos. 902 & 903, to the Defendant. In the event the sale and purchase was not completed and the Plaintiff commenced these two actions which were subsequently consolidated. The claim in one action relates to unit 902 and that in the other to 903. Each unit was the subject of a separate contract. Apart from that the issues arc the same and are dealt with together. The Plaintiff originally claimed specific performance or damages in the alternative, but at the trial elected for common law damages only. The Defendant denies the claim, and counterclaims repayment of amounts he paid. Originally, he also counterclaimed for damages for breach of contract but in the course of the trial abandoned that claim.

2. The Defendant is a stock broker and at all material times had his office in Melbourne Plaza, a building in Queen's Road Central, about 5 minutes' walk from the site of the Regent Centre. He wanted larger office premises and got hold of some loose plans of the proposed Regent Centre early in 1981, probably from the building site office. He went through the plans and thought the design was quite good. They showed shopping arcades on the ground, 1st and 2nd floors, and exits to Queen's Road and Stanley Street. The Defendant says the exits on two streets particularly appealled to him as he had similar exits onto Queen's Road and Des Voeux Road from Melbourne Plaza. He telephoned and was told that it was to be a high class development. He decided to buy two units i.e. Nos. 902 & 903. There was a special 5% discount before units were to be offered to the public. Besides he was led to believe units were being snapped up. So he rushed off to the developer's office on 18th March 1981 and paid his deposit of $100,000 i.e. $50,000 on each unit. He was anxious to get them. It is not clear exactly how he came to choose the particular two units, but that does not matter.

3. He was very pleased with his bargain. At that time the property market was very buoyant. The building work was in its very early stages, and at that time not due to be completed until the end of 1983, some 2 1/2 years later. A little later, in April 1981 he obtained a coloured brochure of the proposed Regent Centre.

4. The next step was the signing of the Sale and Purchase Agreement ("the Agreement"). This the Defendant did at the offices of Deacons, the Plaintiff's solicitors, on 18th September 1981. The agreed purchase price was HK$3,573,000 for unit 902 and HK$3,556,000 for unit 903. The Agreement was explained to the Defendant by a Chinese-speaking solicitor.

5. In addition to the loose plans the Defendant obtained in early 1981, and a brochure he got hold of after paying his deposits, he obtained a second brochure about the time the occupation permit was issued, i.e. around 24th August 1983. All these showed on the ground, 1st and 2nd floors, shopping arcades with corridors or passages between the shops. They also showed an entrance on the 2nd floor from Stanley Street.

6. After the occupation permit was issued the Plaintiff combined several of the planned shops on the ground floor and part of the planned passages into a large single unit which was leased to the Chase Manhattan Bank for 5 years from September 1983. Also the planned shops on the first and second floors together with part of the planned passages or common parts on those floors were converted into a restaurant. Partitions were erected around the centrally situated escalator on the 1st floor to hive off the restaurant area. The plans for the restaurant were submitted by the Authorised Person, not in his capacity as such, but on behalf of the restaurant. The restaurant area on the 1st and 2nd floors, including planned common areas within it, were let to a restaurant for 7 years at a very substantial rent. As a consequence, the Stanley Street entrance now leads not to a shopping arcade but to the restaurant, though also to the escalator. As an additional consequence access to certain exits on the 1st and 2nd floor can only be gained through the restaurant area.

7. The Agreement contains a payment schedule and in accordance with it the Defendant made further payments bringing his total to $1,782,250 by 1st June 1982.

8. An occupation permit for the Regent Centre was issued on 24th August 1983, and on 31st August 1983 the Plaintiff's solicitors wrote to the Defendant notifying him of that fact and that under the Agreement completion was required within 14 days i.e. on or before 15th September 1983.

9. Between the signing of the Agreement in 1981 and the completion of the building in 1983 the property market suffered a severe set-back. The massive impact of that upon property prices will be seen later.

10. The Plaintiff's solicitors, Deacons, were also acting for the Defendant, as permitted by the law Society. But within 3 days of writing their letter of 31st August 1983 to the Defendant requiring completion, the Defendant had replaced them by Messrs. Fairbairn & Kwok who are now the Defendant's solicitors.

11. On 23rd September 1983 Deacons gave the Defendant notice under clause 16 of the Agreement which in broad terms provides that upon breach of any of the terms of the Agreement followed by 2 notices, the vendor might re-enter and sell the premises and recover the amounts due.

12. On 17th October 1983 the Defendant visited the site with a solicitor from Fairbairn & Kwok, Mr. Robert Lo, and that same day his solicitors complained to Deacons in the following terms:-

13. Deacons responded to those complaints on 9th November 1983, in the following terms:

14. There then followed exchanges about title into which there is no need to enter. On 7th August 1984 Deacons wrote to the Defendant requiring completion within 14 days. On 16th August 1984 the Defendant solicitors made further complaints and forwarded a report on the Regent Centre prepared at the Defendant's request by Jones Lang & Wootton, a firm of surveyors.

15. It is not necessary to record the facts or further correspondence in greater detail at this stage. But one significant matter must be mentioned. It was of course put to the Defendant that his refusal to complete the purchase was the result of the collapse in the property market. He denied that. His complaint in the last resort appeared to be that the Regent Centre turned out to be "different", but it was not very clear what difference he was objecting to. Also it is significant how his objection and complaints altered and developed. I do not believe him and on the contrary find that the massive drop in property values was the reason for his refusing to complete. Nonetheless, whatever his motives, the Defendant is entitled to rely upon his legal rights. As Fuad JA observed in the not dissimilar case of Woomera v. Provident Centre (Civil Appeal No. 130 of 1984) at pp. 29 & 30:-

"The purchasers were fully entitled to insist upon their legal rights whatever their motives for seeking to withdraw from their agreements, but they should not be surprised if (as happened here) their list of condemnations is very carefully scrutinized where, in the absence of any inclination by the vendors to vary their bargain, they were so obviously looking for excuses not to complete. It is as if they were seeking to construe and apply the building regulations more harshly than does the building authority. "

16. The Plaintiff issued its two writs on 22nd September 1984. The Defendant's defence and counterclaim, which I have already touched upon, were filed on 1st November 1984, and in substance alleged that the building was not what was contracted for in that there were breaches of the Building (Planning) Regulations and some alterations, and further that certain common parts had been wrongfully converted to other purposes. Again it is not necessary to go into the pleadings and numerous amendments made to them at this stage. The main issues arise out of the Defendant's complaints and are as follows:-

17. Issue I involves matters that arise primarily in 2 of the other issues. I therefore defer it for subsequent consideration.

18. Issue II. Was the vendor in repudiatory breach in failing to comply with the requirements of the Building Authority contrary to clause 3(1)(b) of the Agreement.

19. Clause 3(1) provides that:-

                "The Vendor shall:-

20. I adopt the view of Liu J. in Woomera v. Provident Centre (HC Action No. 12647 of 1982) that a provision in terms of paragraph (b) must import compliance with the Buildings Ordinance and Regulations. By analogy it should extend also to Codes of Practice under that Ordinance and those Regulations, in particular the Code of Practice on the provision of means of escape in case of fire and allied requirements, ("the Code") issued by the Building Authority.

21. The Defendant complains of the following breaches of the Building Regulations and the Code:-

22. It is not disputed -

23. The Defendant's complaints are based on Building Planning Regulation 41(1) which provides that:-

"Every building shall be provided with such means of escape in case of emergency as may be required by the intended use of the building. "

24. The Plaintiff replies that the alteration and enclosure complained of do not involve the structure of the building and by virtue of section 41(3) of the Buildings Ordinance, does not require application to or approval from the Building Authority. Section 41(3) provides that:-

"Building works other than drainage works, ground. investigation in the scheduled area or site formation works not involving the structure of any building may be carried cut in any building without application to or approval from the Building Authority. "

25. In my view the re-positioning of the door and the partitioning complained of did not involve the structure of the building and therefore did not require the approval of the Building Authority. However the Defendant submits that even if prior approval was not required, the re-positioning of the door and the partitioning are in breach of Building Planning Regulation 41(1). That regulation is couched in the most general terms and involves subjective application to particular circumstances, very little guidance being available in the present respect from the Code.

26. As to the ground floor I would accept that some fire resistant covering of the exposed pipes would be desirable. But I am not satisfied that its absence constitutes a breach of regulation 41(1). At a late stage in the matter the Defendant also sought to rely upon the provisions of the Code relating to minimum travel distance i.e. the distance that would have to be traversed from any point in a storey of a building to a staircase. He claims that following the amalgamation of the shops on the ground floor the distance from the rear of the bank premises to the street exit exceeds the distance provided in paragraph 12 of the Code. In referring to travel distances to staircases, paragraph 12 clearly relates to the upper storeys of a building and not to the ground floor. However it is argued on the Defendant's behalf that if not applied thereto there will be no travel distance safety provisions in respect of ground floors. I am not satisfied that paragraph 12 should apply to ground floors nor that the travel distances applicable to upper floors are appropriate for ground floors. I accordingly decline to construe paragraph 12 as applicable to the ground floor in question. I will return to the effect of non-compliance with the Code.

27. As to the 1st floor, the Defendant's complaint is that by virtually enclosing the lift lobby area by partitions and lockable doors the Plaintiff is in breach of regulation 41(1) in that the means of escape from that area falls short of what is required. Whether the doors on that floor were and are lockable is disputed. I find that they were locked on occasions in the past and could possibly be locked in the future to protect the property and security of the restaurant, if for no other reason. That would still leave what seems to me to be a perfectly reasonable escape route up or down the escalator to the 2nd floor and the ground floor street exits. But the definition of "exit route" in paragraph 2 of the Code excludes escalators.

28. This raisesthe question of the effect of the Code. The introduction to the Code after a reference to regulation 41(1), states that:-

"The Building Authority deals with each case on its merits after full consideration of the circumstances. Nothing herein contained must be taken as in any way derogating from the power of the Building Authority to secure reasonable and adequate means of escape in case of fire.

The requirements contained herein may be accepted as a Code of practice for the guidance of authorised architects and the preparation of plans for new buildings. "

Clearly the Code is only intended for guidance. The very general terms of` regulation 41(1) provides & wide basis for intervention by the Building Authority and through the Authority by the Fire Services Department. Both, in my finding, have been aware of the re-positioning of the door and of the partitioning. Yet neither has shown any inclination to intervene. I think it would be singularly inappropriate in the circumstances for this court to adopt a rigorous approach, which I am in any event not persuaded that I should, where those authorities themselves have not deemed that necessary. I therefore find that there has not been a breach of regulation 41(1). If I am wrong in that conclusion, I would still not regard what would be a minor failure to comply with the Code and regulation 41, moreover one in the nature of a technical breach, as constituting a repudiatory breach of the Agreement.

29. Issue III Was the vendor in repudiatory breach in failing to complete the building in accordance with the approved building plans contrary to clause 3(1)(c) of the Agreement.

30. It will have been seen from clause 3(1)(c) of the Agreement that the Plaintiff had to "complete the building in all respects in accordance with the building plan ....".

31. Clause 3(iv) of the Agreement provides that the building shall be deemed to be completed on the date on which the authorised person shall apply to the Building Authority for the occupation permit.

32. In reliance upon the latter provision, the Plaintiff says that once the building was completed i.e. as soon as the occupation permit was applied for, its obligation was discharged and that any subsequent alterations are irrelevant. Underlying this submission are certain alterations effected by the Plaintiff after the occupation permit was applied for but before the Plaintiff accepted the Defendant's repudiatory breach by electing for common law damages.

33. For the Defendant it was submitted that the matter ought not to be regarded on such a narrow basis, but against the background of the Agreement. It was claimed that if the Plaintiff's view was accepted it would have grave implications in Hong Kong, where following completion under this common form of agreement developers could then proceed to make substantial alterations unacceptable to purchasers and yet force them to complete.

34. I do not think paragraphs (i)(c) and (iv) of clause 3 of the Agreement could properly be construed so as to deem the building to have been completed on the 9th December 1983 only for the purpose of the time of completion but somehow not for the purpose of the physical state of the building in relation to its sale. It seems to me the concept of completion does not lend itself to this, notwithstanding that completion is deemed under the Agreement. Either the building was complete or it was not. It cannot be complete for the purposes of the completion date but not be complete for the purposes of some alterations made after the completion date. Furthermore I am not convinced that purchasers in Hong Kong would be exposed to the dangers suggested. Purchasers may well be able to rely upon an implied term, which was not pleaded in this case or upon misrepresentation or may even seek appropriate clarification prior to entering into such agreements. I do not need to indulge in such speculation. Even if the implications were as grave as suggested they would not entitle me to disregard or distort the plain meaning of the provisions in question.

35. However I shall examine the relevant facts in case I am wrong in my foregoing view. Thirteen building plans were produced in evidence by consent. It is common ground that the first 7 were submitted to and approved by the Building Authority prior to the application for the occupation permit. According to the definition in the recitals to the Agreement "the building plans" mean the general building plans and specifications prepared by the Authorised Person and approved by the Building Authority under reference number B002/1037/79 and include any approved amendments thereto. The most recent of the 7 approved plans must therefore be regarded as "the building plans" under clause 3(1)(c) of the Agreement. The subsequent alterations complained of by the Defendant are:-

36. I think the point can be quite shortly be disposed of. The provision of an additional set of toilets on the 1st floor and the conversion for use as a restaurant of shop space on the 2nd floor are in my view matters so minor and insignificant in the context of an agreement to purchase 2 office units on the 9th floor of a 26 floor building, that they could not form the basis of repudiators breach of the Agreement.

Issue IV    Was the Plaintiff unable to convey undivided shares in "the Building" as defined in the Agreement.

37. Clause 1 of the Agreement which is set out in the context of Issue VI provides for the sale and purchase of all that right benefit and interest of the Vendor in respect of a number of undivided shares in "the Building".

38. "The Building" is defined in the recitals to the Agreement in the following terms:-

39. Consequently the Defendant argues that it was an express condition of the Agreement that the Plaintiff should sell undivided shares of its total interest in the building which should comprise inter alia shops on the First and Second Floors. . It is of course common ground that there are no shops on the First and Second Floors, those floors having been converted to a single restaurant. So, the Defendant submits, the Plaintiff is unable to convey undivided shares in "the Building".

40. In answer the Plaintiff raised a profusion of points listed in its pleadings, I will confine myself to the following. First the Plaintiff says on the true construction of the Agreement it is not required to assign to the Defendant an interest in a building which complies strictly with the definition of "the Building" but one which complies substantially. That definition in express terms applies "except where the context otherwise permits or requires". Looking at clause 1, at the Agreement and at the Deed of Mutual Covenant imported by clause 19 of the Agreement, as a whole, I would accept the Plaintiff's submission. I think that the definition of "the Building" is intended to be descriptive and not to tie down the Building to the precise terms of the definition, and that the context in clause 1 does displace the definition.

41. Second the Plaintiff says it is an express term of the Agreement in clause 21(1) that the Vendor "reserves the right to alter the building plans whenever the Vendor considers necessary". Clause 21(1) plainly so provides, and in my view refutes the Defendant's argument notwithstanding the alternatives curiously provided for only in reference to the 3rd floor in the definition of "the Building". If this 26 storey building was indeed to be frozen in its occupation permit application state, I would have expected that to be provided in manifestly plain language. Furthermore I do not accept the contention made on behalf of the Defendant that clause 21 ceases to have effect once application for the occupation permit is made, (though it might once the purchase has been completed).

42. Third the Plaintiff points out that "the building plans" are defined in the Agreement to mean "the general building plans and specifications prepared by the authorised person and approved by the Building Authority under reference number B002/1037/79 and include any approved amendments thereto". The restaurant plans which clearly disclose conversion of the shops and common areas to a restaurant, were approved by the Building Authority on 15th November, 1983 under reference number B002-3/1037/79. The latter contains the addition "-3". Moreover the restaurant plans were submitted by the Authorized Person not in his capacity as Authorized Person for the building but acting on behalf of the restaurant. Nonetheless, the approved amended plan showing the restaurant is in my view an approved amendment of the building plans. If so technical a view of the definition of "the building plans" as suggested by the Defendant is to be taken, it must surely require only the building plans and not also the approved amendments to be prepared by the Authorized Person. In my finding, therefore, the approved restaurant plans did constitute "approved amendments" to "the building plans".

43. The question of misdescription was raised both in the context of this issue and Issue VI. Mr Ferris says that if the Defendant were to receive something different or less in the way of common parts than what it contracted for, that would be misdescription, which is provided for in clause 8 of the Agreement in the following terms:

"no error mis-statement or mis-description shall annul the sale nor shall any compensation be allowed in respect thereof save and except where such error mis-statement or mis-description relates to a matter materially affecting the description and/or value of the said premises. "

I adopt as the law in point the following passage from page 118 of the 18th Edition of Emmet on Title in dealing with conditions of sale as to misdescription and their consequences:

"First, that no misdescription shall annul the sale. The purport of this condition is that the Vendor should be able to enforce the contract despite rule(1) above. However the condition will not have this effect: The purchaser will still be able to avoid the contract, recovering his deposits and costs, where the mis-description is substantial. "

44. Rule 1 referred to is to the effect that if the misdescription is substantial the Vendor will be unable to enforce the contract. I do not accept Mr Chang's submission that the foregoing does not apply where the sale is of land. It seems to me that the case of Lee v. Rayson (1917) Ch. 613 which he relied upon is more consistent with the foregoing passage from Emmet on Title. Furthermore, bearing in mind the obscure effect of the Agreement and the Deed of Mutual Covenant as to what precisely was to be conveyed, to which I shall come later, if what we have here were misdescription I would be disposed to regard it as innocent. I say that because Mr Chang referred me to the second rule on misdescription appearing at page 117 of the 18th Edition of Emmet on Title:

"(2)    If the misdescription is not substantial, then, provided that the misdescription was made innocently, the Vendor will be able to enforce the contract, although subject to an abatement of the price by way of compensation for the insubstantial deficiency. "

I would also observe that on the basis of Mr Wilburn's evidence to which I shall turn later, that there would be no diminution of value occasioned by the alleged misdescription. I think therefore that the Plaintiff is entitled to rely upon clause 8 of the Agreement.

45. For all the foregoing reasons I find that the Plaintiff was in a position to convey the undivided shares which it had contracted to convey, and that in any case the Plaintiff was not in breach of the Agreement in the context of this issue.

Issue V    Was there misrepresentation on the part of the Plaintiff, of direct street access from Stanley Street.

46. The Defendant's case on this issue is that he agreed to purchase the units partly upon the representation made by the Plaintiff in its sales brochure, that the occupants of the building could obtain direct street access to Stanley Street via a public area of the shopping arcade on the 2nd floor; that acting on that representation and induced by it he entered into the Agreement; and that the entrance in question has now become the entrance of a restaurant which deprives the occupants of direct access to Stanley Street.

47. In response the Plaintiff first, denies that the sale brochure contains such a representation; second, claims that such access is in fact available; third, says that if access is prevented, that has not been done by the Plaintiff; and fourth submits that such access was not within the contemplation of the parties.

48. In my finding the Defendant saw black and white plans and a coloured brochure prior to signing the Agreement and that he quite reasonably did conclude from them that there would be direct access from the interior of the building, specifically the office floors, to Stanley Street. I accept that was probably a factor that influenced him. It may well be that he would have entered into the Agreement anyway, whether or not there was tube such access, but I do not propose to speculate upon that.

49. It is quite true as claimed by the Defendant that the entrance with the large "Buckingham Palace Restaurant" sign over it and the menu display cases on either side is more suggestive of a restaurant entrance than an entrance to the building. Also it is true that the appearance and ambience of the area immediately inside the entrance is that of a restaurant foyer rather than that of an entrance to the building. But the approaches from the entrance to the escalator on the 2nd floor are clear and no satisfactory evidence has been adduced that they were ever occupied by tables as originally alleged. I am satisfied that there is in fact physical access available from Stanley Street through the entrance in question and thence via a public area to the escalator. I do not accept that that entrance ceases to provide adequate access because an average person might have a "feeling" that he is intruding into a private restaurant area, or because a passerby or even an intending visitor might misconstrue the appearance of the entrance. In my finding access is physically possible and it is not prevented through the entrance to the escalator. The escalator leads to the bank of four lifts on the first floor giving access to the upper floors including, of course, the 9th floor. It was never intended from the outset that there would be access to those four lifts on the 2nd floor. That is clear from the loose black and white plans and from the brochure, and is not disputed. So that in my finding direct street access to Stanley Street via a public area on the second floor is available. Accordingly it is not necessary for me to go further into the submissions made on this issue, including the legal submissions on misrepresentation. On my finding that there is in fact access from Stanley Street, the Defendant's allegation of misrepresentation must fail.

Issue VI    Whether the Plaintiff wrongfully appropriated or allowed to be appropriated common parts of the building.

50. The Defendant claims that the Agreement provided for the Defendant as purchaser to acquire proprietary interests in the common parts, and that by converting those parts to a restaurant and leasing the restaurant area for a substantial period, the Plaintiff misappropriated those common parts.

51. Now, although the essential nature of the transaction was the purchase of the 2 office units on the 9th floor, Mr Chang submits that in the way the Plaintiff chose to frame the Agreement, it pro-vided for sale and purchase of undivided shares in "the Building" subject to certain specified restrictions. He relies primarily upon clause 1 which is framed in the following terms:-

52. Part 2 of the Schedule referred to in clause 1 specifies the number of undivided shares to be purchased. Mr Chang refers in particular to the words "and all other right, interest, property, claim and demand whatsoever of the Vendor therein and thereto", the "all estate" clause which he says clearly shows that the Plaintiff as Vendor was to totally divest itself of its original interest in the building, subject to the reservations. He submits that the Defendant thereby was to acquire through his undivided shares, rights in the nature of proprietary interests in the entire building; proprietary rights which are quite separate and distinguishable from the rights of use, which are exclusive in relation to the 2 office units and are in common in relation to the common parts of the building. He submits that the distinction between rights of ownership in common and rights of use in common clearly emerges at the very inception and is maintains throughout the remainder of the Agreement. Going through the reservations he points cut that none of them relate to the common areas, including in particular the passages and corridors.

53. Mr Ferris for the Plaintiff says that those provisions merely reflect the Hong Kong system of conveyancing and are simply a conveyancing device to effect the conveyance of the 2 units, and are not intended to convey an undivided share in common with the Vendor and other purchasers to the entire building, including the common areas he in turn relies upon the Deed of Mutual Covenant which is imported into the Agreement by clause 19. The provisions of that Deed upon which he particularly relies upon are clauses 1 and 7(1) which in that context provide:-

54. Mr Ferris submits that clause 1 excludes the Defendant as a purchaser from holding, using and enjoying all those units and other parts of the said building set out in Part 1 of the First Schedule i.e. all the individual units on the 6th to the 24th floors (excluding the 2 office units on the 9th floor) the basement, ground, 1st, 2nd and 3rd floors, and 24 carparking spaces on the 4th and 5th floors. He submits this exclusion, reinforced by the specific reservations in clause 7, clearly show that the documents as a whole establish that there was no intention to sell and purchase proprietary rights to anything more than the 2 office units.

55. Mr Chang responds that that is not so at all. If clause 1 is construed as a total reservation of everything in Part 1 of the First Schedule, it would make nonsense of clause 7 which would then simply duplicate much of the same reservation. He contends that the only tray to give effect to both clause I and clause 7 of the Deed of Mutual Covenant, is to construe "other parts" in clause 1 as the 24 carparking spaces specified in Part 1 of the First Schedule. Unfortunately this presents 2 difficulties. First, clause 3 defines unit in the following way:-

"3.    In this Deed, references to "unit" shall unless the context otherwise requires include each shop space or office space or car parking space and/or all the external walls of the said building and/or each portion of the said building intended for separate occupation and where applicable, the portion of the flat-roof or main roof (if any) held and enjoyed therewith. "

Carparking spaces are clearly included in references to units. Second, Part 1 also includes references to the lower floors. Nonetheless Mr Chang submits, only his suggested interpretation produces a concordance between the provisions of the Deed of Mutual Covenant and those of the Agreement, both of which have been very carefully drafted, inter alia, preserving the distinction between a right in common to . ownership and the right to use in common. I do not think those considerations, even upon the assumption that he is right, could justify so substantial a modification of the plain meaning of clause 1

56. Mr Chang also submits that the Agreement is the overriding document and that it describes the rights and obligations of the vendor qua vendor, whereas the Deed of Mutual Covenant is a subsidiary document relating to the relationships between owners qua owners. That may well be the position that ought to have been achieved, but it is necessary to have regard to the documents as they are. In the light of its importation by clause 19, I consider that the Deed of Mutual Covenant msut be construed together with the Agreement to determine the combined effect of the 2 documents. There is nothing that I can see in either, that requires the Deed of Mutual Covenant to be regarded as a subordinate document. In expressly reserving to the vendor the exclusive right to "sell" common parts of the building, clause 7(i) of the Deed of Mutual Covenant is in clear conflict with clause 1 of the Agreement insofar as the latter provides for undivided shares in the entire estate of the vendor which must include its former interests in the common parts. That conflict is in no way diminished by the inconsistencies within clause 7(i) itself e.g. the duplication in sub-paragraphs (b) and (c) of the overall reservation in sub-paragraph (d) (with the complication of a suggestion in the former sub-paragraphs that presumably fails because of the latter, that those common parts intended for common use are not so reserved). Bear-in mind the fundamental object of the documents and the transaction they are designed to accomplish, and more particularly the stark reservations in the Deed of Mutual Covenant, I think that this conflict must be resolved in favour of the reservations in the Deed of Mutual Covenant, which appears to me to be the more specific of the provisions concerned. Alternatively, if clause 1 of the Agreement does effectively provide for the coveyance of proprietary rights in the common areas, then clearly the use of those areas must be subject at the very least to the rights of the vendor and its assigns (other than the purchaser) to use the common areas to the exclusion of the purchaser and to dispose of that right of use. I conclude therefore that read together the Agreement and the Deed of Mutual Covenant do effectively reserve to the vendor and its assigns proprietary rights to the common parts or alternatively rights to exclusive use. Upon either view, in my finding upon the evidence, the right of the purchaser to use the common parts, such as they may be, "for the purpose of access to and egress from the said premises" is not impaired by the "appropriation" complained of by the Defendant. And upon either view Mr Chang's submission must fail.

57. However the relevant provisions cannot be commended for their clarity and pose obvious difficulty in construction. In case, therefore, that I am shown to be wrong, I will proceed to the other aspects of Issue VI that may fall to be decided. Mr Ferris submits that even if the Agreement and Deed of Mutual Covenant do provide for provide for proprietary interests in the common parts, it has to be determined which or what are the common parts. Mr Chang relied on the "matrix of facts" as establishing those common parts.

58. Specifically he relied upon (a) the sale plans in the context of publicity and the surrounding circumstances; (b) the building plans incorporated in the Agreement by reference and (c) the direct oral evidence of separate occupation of the "units" listed in the Deed of Mutual Covenant as shown on the brochure plans (which by implication suggest that the areas not comprised by the "units" are common areas).

59. The black and white loose plans that the Defendant obtained in 1981 were each clearly headed "Amended Plan" at the top and, at the bottom, had the note "All plans are subject to the amended plans to be approved by the building authority. " At the time the actual construction of the building itself had not quite commenced. In my judgment these plans cannot of themselves operate to delineate the common areas; at best they indicated what was proposed. I take the same view of the 2 brochures, the Defendant subsequently obtained, notwithstanding that by the time the later of those two was obtained, the building was complete, or almost complete in the sense that the occupation permit was applied for about that time. The shops however had not been constructed, so that there was no physical delineation of the corridors and passages.

60. As to the building plans, the shops and adjoining common areas were shown by dotted or broken lines. In my finding, those lines indicated proposed partitions and therefor of themselves could not effectively delineate or form the basis of appropriation as common areas.

61. Finally proceeding to the direct oral evidence, Mr Cecil Choa, a director of the Plaintiff Company testified under cross examination that the units listed in the Fourth Schedule to the Deed of Mutual Covenant followed the brochures and that from those units it was possible to tell what was for separate occupation and for common occupation on the floor plans and the brochure. I doubt whether Mr Choa would for one moment accept the conclusion sought to be drawn from his answers. I do not accept that Mr Choa's answer binds me on the question of whether those matters effected appropriation or delineation of the common parts. Nor do I accept that those matters effected appropriation or delineation of the common parts, bearing in mind that at the time those plans in relation to the shops were proposals that were never implemented on the ground; the shops were in fact never "built". In this respect also, I find that the common parts were not delineated or appropriated as such.

62. Nor, in my view, do the foregoing matters cumulatively appropriate or delineate the ccommon parts. It follows that if those alleged common parts were never appropriated or delineated as such, they could not be wrongly appropriated by the Plaintiff to some other purpose.

63. Mr Ferris also relied upon the Vendors reservation of the right to alter the building plans under clause 21(i) of the Agreement, which provides that:

"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 of such alteration if the same affects in any way the said premises hereby agreed to be sold as soon as the same has been approved by the Building Authority. If as a result of such alteration the saleable area of the said premises according to such amended plans shall differ from the saleable area thereof hereby warranted then the purchase price shall be increased or reduced in proportion to the increase or reduction in the saleable area provided that if the increase or reduction in the saleable area shall be greater than 5% of the saleable area of the said premises then the Purchaser shall have the option to determine this Agreement in which event all monies paid by him hereunder shall be returned to him with interest at the rate of one per cent per calendar month from the date or dates of payment to the date of repayment..... "

64. Mr. Chang submits that the right to alter does not extend beyond completion of the building. It is possible that it does not extend beyond completion of purchase, but I do not accept that it does not extend beyond completion of the building. In my finding the Plaintiff was entitled to alter the building plans. Also in my view the alteration did not affect the Defendant's right in common to access and egress which in any case was not thereby substantially interferred with (CELSTEEL v. ALTON (1985) 1 WLR 204). In arriving at that conclusion I have taken into account the additional distance involved in getting to the service lift, the necessity to pass through the restaurant area on the 1st and 2nd floors, and my view that the service lift is not the normal means of access and egress (as opposed to the four other lifts).

65. Mr Ferris also relied upon clause 8 of the Agreement (conditions as to mis-description), with which I have already dealt in the context of Issue IV. If what would be conveyed would be less than what was contracted for, then I think the Plaintiff could also rely upon clause 8 under this Issue.

66. In consequence the Defendant's claim that the Plaintiff wrongfully appropriated the common parts on the 2nd floor must also fail.

Issue I     Was the vendor in a position validly to assign.

67. Clause 4(a) of the Agreement is framed in the following terms:

68. The purchase shall be completed at the office of Messrs. Deacons:-

69. Para. 5 of the Second Schedule to the Agreement provides for the "balance of the purchase price to be paid within 14 days of the Purchaser being notified by the Vendor that the Occupation Permit of the said premises has been issued. "

70. It was not sought to rely upon sub paragraph (ii) of clause 4(a). Mr. Chang for the Defendant submits that the ability to validly assign was a substantial requirement that had to be met in fact; that it was not a mere matter of assertion. I think that must be so. In any case Mr. Ferris does not dispute that, but submits the Plaintiff was in a position validly to assign. Furthermore, Mr. Chang submits that that ability had to exist at all material times, from 31st August 1983 when notice of the occupation permit was served upon the Defendant until 11th October 1985 when the Plaintiff abandoned its claim for specific performance and elected for common law damages. Again I think that must right. By maintaining its claim for specific performance and not repudiating the Agreement, the Plaintiff kept it open for both parties so that the Defendant could take advantage of any inability of the Plaintiff validly to assign. (Chitty on Contracts 25th Fdition para. 1607).

71. The issue of inability to assign turns on 2 matters. First the existence of a mortgage, and second the alleged appropriation of common parts which it is claimed by the Defendant effectively prevented the Plaintiff from passing interests in those common parts to the Defendant. Upon the findings I have already made, the Defendant must fail upon the latter.

72. As to the former, it is common ground that clause 5 of the Agreement requires the sale and purchase i.e. the assignment, to be free from encumbrance. The mortgage, as is usual in Hong Kong, was by way of assignment. Consequently it was necessary for the Plaintiff to be in a position to bring about the re-assignment. That is plainly so and was not disputed.

73. It is clear from clauses 14.03(ii) of the mortgage deed and 6.01 of the supplement thereto that the partial re-assignment necessary would be made upon payment "provided no event of default shall have occurred". Clause 17.01(ii) of the mortgage provides:

74. Under clause 15.01 (i) of the mortgage it is clearly an obligation of the Plaintiff not, unless first agreed in writing by the majority of lenders, to sell, transfer or otherwise dispose of the property or any part thereof or any interest therein or to enter any agreement so to do. Clause 15.02 sets out the information (which includes the form of the sale and purchase agreement) to be submitted and the procedure to be followed in obtaining such consent from the lenders. Under clause 15.01 (vii) it is also an obligation not to "knowingly do or omit or permit anything to be done the doing or omission of which shall be a contravention of any planning or building legislation".

75. When the Defendant paid the 2 deposits of $50,000 each, he and a representative of the Plaintiff signed forms entitled "Instructions for Sale and Purchase". Notwithstanding that title, they were clearly agreements for sale and purchase. The evidence equally establishes that the consent of the majority lenders to the price was not given until 2nd April 1981 and to the form of sale and purchase agreement act until 13th May 1981. There was therefore a technical default in March 1981. But it was cured by the consent granted in May 1981. It must be doubtful in the extreme whether by 31st August 1983, when Deacons wrote the first of their 3 letters seeking completion of the purchase, the default of March 1981 could have entitled the mortgagee to refuse to re-assign; and the possibility that it would attempt to do so must have been non-existent, given the collapse in property market prices. It is true that Mrs. Nenita Cheung the mortgagees' managing agent's officer concerned, admitted that she did not know of the default. Nonetheless, I am satisfied on the basis of her evidence and the nature of the matter that there was never any real prospect or possibility of re-assignment being refused.

76. Proceeding then to the question of "contravention of ..... building legislation" which would also be a default under the mortgage agreement, I have already recorded my view in the context of Issue II that I am not satisfied that the Plaintiff was in breach of the Building Planning Regulations in respect of the complaints dealt with. And if these very minor matters were indeed technical breaches of the Regulations, I do not believe there was any real prospect or possibility of re-assignment being refused.

77. As to appropriation of the common parts of the building, in the context of Issue VI, I have already found that the common parts alleged to have been wrongly appropriated to other purposes, had never in fact become common parts.

78. I do not believe that any reasonable or any reasonably cautious purchaser would doubt that the property would be re-assigned. I accordingly see no merit in the Defendant's complaint is respect of this issue and it must accordingly fail.

79. It follows that the Defendant fails in respect of all the foregoing issues and is therefore in breach of the Agreement in failing to complete the purchase.

Damages

80. The Plaintiff is accordingly entitled to damages. As to whether there would be any difference in the basis of damages in equity and common law, and as to the date by reference to which the damages should be assessed, the law in point is set out in the judgment of Wilberforce LJ in Johnson v. Agnew (1980) AO 367. At page 400 having found that Lord Cairns' Act created a power to award damages which did not exist before at common law, he went on to hold that:

"there is sound authority for the proposition that the Act does not provide for the assessment of damages on any new basis. The wording of section 2 'may be assessed in such manner as the court shall direct' does not so suggest, but clearly refers only to procedure. "

Then having reveiwed the authorities he said:

"On the balance of these authorities and also on principle, I find in the Act no warrant for the court awarding damages differently from common law damages, but the question is left open on what date such damages, however awarded, ought to be assessed.

(2)        The general principle for the assessment of damages is compensatory, i.e. , that the innocent party is to be placed, so far as money can do so, in the same position as if the contract had been performed. Where the contract is one of sale, this principle normally leads to assessment of damages as at the date of the breach - a principle recognised and embodied in section 51 of the Sale of Goods Act 1893. But this is not an absolute rule: if to follow it would give rise to injustice, the court has power to fix such other date as may be appropriate in the circumstances.

            In cases where a breach of a contract for sale has occurred, and the innocent party reasonably continues to try to have the contract completed, it would to me appear more logical and just rather than tie him to the date of the original breach, to assess damages as at the date when (otherwise than by his default) the contract is lost. Support for this approach is to be found in the cases.

            In the present case if it is accepted, as I would accept, that the vendors acted reasonably in pursuing the remedy of specific performance, the date on which the remedy became aborted (not by the vendors' fault) should logically be fixed as the date on which damages should be assessed. Choice of this date would be in accordance both with common lava principle, as indicated in the authorities I have mentioned, and with the wording of the Act "in substitution for .... specific performance. " The date which emerges from this is April 3, 1975 - the first date on which mortgagees contracted to sell a portion of the property.... The same date (April 3, 1975) should be used for the purpose of limiting the respondents' right to interest on damages. "

81. In the present case evidence of the fluctuating value of the premises came from the Plaintiff's fourth witness James Wilburn, whose evidence was neither shaken nor seriously challenged, and which I accept. His expert opinion was that the combined value of the 2 units was $2,160,000 in September 1983 when the purchase should have been completed), $1,920,000 in August 1984 (when the Defendant repudiated the Agreement) and $2,200,000 in October 1985 (when the Plaintiff elected for common law damages).

82. In my finding the Plaintiff acted reasonably in pursuing the remedy of specific performance. That remedy became aborted on 11th October 1985 when the Plaintiff elected for common law damages. I do not see that that date would give rise to injustice. True the value appreciated (with consequent diminution of the damages) by about $40,000 between September 1983 and October 1985. But I do not see how that could be unjust since the benefit of the appreciation remained with the 2 units in the hands of the Plaintiff. In my view therefore the date for assessment purposes should be 11th October 1985.

Interest

83. The parties concern about the date for assessment of damages I think stems from the implications it may have for the period interest may be payable which could result in a large sum, and which was dealt with by Wilberforce LJ in the last sentence of the passage quoted above. He did not give any reasons. But upon the basis of that statement and that the Plaintiff kept the Agreement alive until 11th October 1985 by not accepting the Defendant's repudiation, it is claimed on the Defendant's behalf that interest should only be payable from that date.

84. This court's jurisdiction to award interest is provided in section 48(1) of the Supreme Court Ordinance (Cap. 4) which empowers the court to "include in the sum for which judgment is given interest at such rate as it thinks fit on the whole or any part of the debt or damages". Under subsection (2)(b) that power does not "apply in relation to any debt on which interest is payable as of right whether by virtue of any agreement or otherwise".

85. Clause 2(iii) of the Agreement provides for interest at the rate of 1.5% per calendar month on any instalments not paid when due. But since the Plaintiff's claim is in damages and not debt, subsection (1) is not displaced by subsection (2)(b). I accept as the law on whether interest should be paid, from which date, and at what rate, the judgment of the Hong Kong Court of Appeal in Komala Deccof v. Perusahaan (1984) HKLR 219, which is summed up in the headnote in the following way:-

Held:

86. Applying those principles to the present case, I do not think there are any exceptional factors that would justify departure from the basic principle that interest should be paid. Also subject to any submissions that maybe made, it seems to me that this being in the nature of a commercial transaction, the rate of interest should be the prime rate plus one per cent. It is the date from which interest should run that occasions some difficulty. For the Plaintiff it is contended that such date should be the 15th September 1983 when the Defendant should have paid the balance of the purchase price, which he wrongfully failed to do. For the Defendant it is contended that it should be the 11th October 1985 when the Plaintiff abandoned its claim for specific performance and elected for common law damages. No authority directly in point has been cited to me. At paragraph 473 of the 14th Edition of McGregor on Damages it is said that "It is incontrovertible, in the first place, that interest cannot run for any period of time which is anterior to the accrual of the plaintiff's cause of action". However from the footnote to that statement it becomes clear that the fundamental principle, also recognised by the Court of Appeal in Komala Deccof v. Perusahaan (1984) HKLR 219 in referring with approval to the same case of general Tyre Co. v. Firestone Tyre (1975) 1WLR 819, is that justice, in principle, requires that a wrongdoer who has failed to pay money he ought to have paid, should pay interest over the period he has withheld the money. Upon the findings I have already made, I conclude therefore that interest should be paid from 15th September 1983, notwithstanding that I have accepted the 11th October 1985 as the date for assessment of damages.

87. I proceed now to the counterclaim which, of course, was founded upon the same allegations as the defence. Under the counterclaim the Defendant claims - (1) a declaration that he is not liable to complete the purchase of the premises, (2) recission of the Agreement,(3) repayment of the amounts paid, (4) alternatively damages for breach of contract or misrepresentation, (5) interest and (6) costs.

88. Item (4) was not pursued by the Defendant. The remaining items, i.e. (1), (2), (3) and (5) must, having regard to the findings I have already made, all fail. The counterclaim is accordingly dismissed.

89. I would accordingly order the Defendant to pay the Plaintiff the sum of $3,146,750, being the contract price less the value of the 2 units in October 1985 and the amounts paid. I would also award interest thereon from 15 September 1983. And subject to any submissions I would award costs on both the claim and the counterclaim to the Plaintiff.