CHU CHAK PIU RAYMOND v. TSANG CHI CHIU AND ANOTHER

HCMP 2556/98

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 2556 OF 1998

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JUDGMENT

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The property

1. This is a Vendor and Purchaser Summons. By an Agreement dated 29 September 1997, the Defendants agreed to purchase from the Plaintiff a flat on the 22nd Floor in Block 47 of the development in Chai Wan known as Heng Fa Chuen.

Existing surroundings

2. To the southeast of the development is the waterfront of Chai Wan. It is not disputed that, as shown in photographs exhibited to the Defendants' Affirmation (albeit taken from a different block), there was at the time of the agreement, an oil depot and a government supplies building along the waterfront, and beyond that, a U-shaped basin forming a harbour.

Notice of rescission

3. Three days before the scheduled completion day, on 28 May 1998 the Purchasers' solicitors wrote to the Vendor's solicitors stating that the property was included in an Outline Zoning Plan (commonly known as an "OZP") No. S/H20/6, which on 24 September 1993 amended OZP No. S/H20/5.

4. OZP No. S/H20/6 showed that the site occupied by the oil depot and supplies building was zoned for "Industrial" use and that the area bordering the basin was zoned for "Cargo Handling Area".

5. The Purchasers' solicitors stated that these permitted uses seriously affected the environment as well as the Purchasers' intended use and enjoyment of the property, in that industrial development on the site and the cargo handling area would give rise to air and noise pollution, heavier traffic flow, disturb the peaceful sea view and would affect the value of the property.

6. The Purchasers purported to thereby give notice to the Vendor rescinding the agreement pursuant to Cl. 25 of the Agreement.

Clause 25

7. Clause 25 of the Sale and Purchase Agreement provided:-

"The Vendor hereby declares that he has not received any notice under the Crown Lands Resumption Ordinance Cap. 124 or the Mass Transit Railway (Land Resumption and Related Provisions) Ordinance Cap. 276 or any other form of notice of similar nature affecting the Premises [defined as the flat in question] and has no knowledge whatsoever whether the Premises are included in any layout plans (draft or approved) under the Town Planning Ordinance Cap. 131. The Purchaser acknowledges that he has been advised by his solicitors that he should satisfy himself through independent professional advice as to whether the Premises are affected by the said Ordinances or any of them. If it shall be ascertained before completion of the purchase that the Premises are affected by any of the said Ordinances, the Purchaser may by notice in writing to the Vendor rescind this agreement in which event the deposits paid hereunder shall be forthwith returned by the Vendor to the Purchaser in full but without any compensation interest or costs and neither party shall have any claim against the other or either party's solicitors hereon and the parties shall at their own cost enter into and cause to be registered at the Land Registry an Agreement for Cancellation. In the event of the Vendor not having received such notice prior to the Completion Date the Purchaser shall be deemed to have agreed to purchase with full knowledge as to whether the Premises are so affected by the said Ordinances or any of them. The Vendor hereby undertakes to notify the Purchaser forthwith upon receipt of any of the aforesaid notices".

Issues

8. The issues argued before me were:-

(1) whether mere inclusion of the Premises in the OZP would be sufficient to entitle the Purchasers to give notice of rescission, or whether the Premises would have to be affected before such notice could be given;

(2) if the latter, whether inclusion in an OZP necessarily means that the Premises are affected;

(3) whether these Premises were affected by the OZP such as to entitle the Purchasers to rescind the agreement.

Mere inclusion not sufficient

9. It is a canon of construction that a clause must be read as a whole. When Cl. 25 is read as a whole, it is clear that the mere fact that the Premises are included in the OZP does not entitle the Purchasers to rescind the agreement. The Premises have to be affected as well.

10. It is true that the first sentence of the clause contains the Vendor's declaration that he has not received any notices under the Crown Lands Resumption Ordinance or the Mass Transit Railway (Land Resumption and Related provisions) Ordinance, and that he has "no knowledge whether the Premises are included in any layout plans ...".

11. However that is not the end of the matter - the clause then goes on to say that the Purchaser should satisfy himself whether the Premises are "affected" by any of the Ordinances, including the Town Planning Ordinance, and it is expressly only when it is ascertained that the Premises "are affected" by any of the said Ordinances that the Purchaser may give notice to rescind. The requirement that the Premises have to be "affected" is shown in the deeming provision that where the Vendor has not received notice of rescission from the Purchaser under Cl. 25, the Purchaser shall be deemed to have agreed to purchase with knowledge as to whether the Premises are "so affected by the said Ordinances or any of them".

12. It is therefore clear from the construction of the clause as a whole that the mere fact that the Premises are included in an OZP does not entitle the Purchasers to rescind. The Premises have to be affected as well.

Inclusion in layout plans does not necessarily mean Premises are affected

13. Counsel for the Purchasers submitted that the inclusion of the Premises in an OZP shows that they are affected by the Ordinance. In other words, Mr Fung's argument is that it necessarily follows from inclusion of the Premises in an OZP that they are affected by the Ordinance.

14. I cannot agree. In my view, the inclusion of the Premises in an OZP may affect the Premises; but it is not the case that it must affect the Premises. If the parties had agreed that inclusion in an OZP would in all cases affect the Premises such as to entitle the Purchasers to rescind, one would expect much clearer language to be used. Instead the Purchasers have agreed that they should satisfy themselves through independent professional advice as to whether the Premises are affected by any of the Ordinances.

15. The question asked rhetorically by the Purchasers is:- if that were the case, why was there a reference to "inclusion in the layout plans" at all. In my view, that is more easily understood when it is realized that in the first sentence, the Vendor declares the objective fact that he has not received any notices under the Crown Lands Resumption Ordinance or the Mass Transit Railway Ordinance.

16. Under the Town Planning Ordinance however, no notices are given to owners of property which may be affected by the lay-out plans. The plans are only exhibited for public inspection under s.5 of the Town Planning Ordinance.

17. Therefore it was not appropriate for the Vendor to declare that he has not received any notices under the Town Planning Ordinance. There is thus substituted the reference to a fact that is similarly objective - inclusion in the layout plans, and as to this, the Vendor declares that he has no knowledge whatsoever whether the Premises are included.

18. Accordingly, on the true construction of Cl. 25, I find that premises which are included in layout plans may be affected, not that they must be affected. I then turn to see whether in this case, the Premises here were affected such as to entitle the Purchasers to rescind the agreement.

Premises not affected

19. The word "affected" has been said to be "not a word of art, but a word of ordinary English. It is capable of a very large meaning ..." (In re Buckinghamshire County Council and Hertfordshire County Council (1899) 68 L.J.Q.B. 417, 419).

20. In Re Clarendon Developments Ltd. (1965) 50 DLR (2d) 521, 526, the court considered the dictionary meaning of "affect" as "to have an effect on; influence; produce a change in".

21. The word reflects the language of the Town Planning Ordinance, which employs the word in s.4(3), s.6(1) and s.6(7). It is clear from s.4(3) that zoning may "affect" a property even though the property does not lie within the zone itself. Section 4(3) provides that except in the case of resumption, no compensation shall be paid to the proprietor or any person interested in any holding by reason of the fact that it lies within or is affected by any zone.

22. Therefore, in theory, a layout plan may be capable of affecting a property even though the property does not lie within a zone specified for certain uses (Clarendon, 526). It is a question of fact in every case whether the property is affected.

23. It is common ground between the parties that although the word "affect", taken on its own, means to have an effect whether in a beneficial way or in a prejudicial way, in the context of Cl. 25 which gives only the Purchasers the right to rescind, and not the Vendor, the word must mean affect adversely or prejudicially.

24. In the present case, I find that the zoning of the site where the oil depot and supplies building now stand for "Industrial" use and the area bordering the basin for "Cargo Handling Area" do not produce any injurious or prejudicial effect on the Premises.

25. As far as the site zoned for "Industrial" use is concerned, there was already an oil depot and a supplies building on the site when the Purchasers viewed the Premises prior to entering into the Agreement. An oil depot is an industrial undertaking. The Purchasers therefore knew that the site was for industrial use. Whatever effect that permitted use has on the Premises had already been accepted by the Purchasers when they agreed to purchase the Premises with an industrial undertaking in place there. In any event, the site in question is such a distance from the flat in question that any injurious or prejudicial effect would be negligible.

26. As far as the Cargo Handling Area is concerned, that is even further from the flat in question, and there is nothing in the evidence that lends any reasonable ground for the assertion that it would give rise to heavier traffic flow and resultant air pollution such as to adversely affect the flat, or that there would be noise pollution from sea traffic. As for the sea view, it would have been obvious to the Purchasers at the time of the Agreement that the basin was man-made, and thus designed for sea traffic.

27. Accordingly, I cannot accept the Defendants' submission that the zoning of those two areas in the OZP injuriously or prejudicially affect the Premises such as to entitle them to rescind the agreement.

Declarations

28. By reason of the above, I find that the Defendants were in anticipatory breach when they indicated that they would refuse to complete, and that the Plaintiff was entitled to accept the repudiation which he did on 1 June 1998.

29. It follows that the Plaintiff is entitled to orders in terms of paragraphs 3 and 4 of the Originating Summons.

Damages for breach

30. The Plaintiff has also sought damages for breach of contract. He has notwithstanding Cl. 4 of the agreement chosen to apply the usual contractual measure of the difference between contract price and market value at the date of breach, i.e. 1 June 1998. The contract price was $6,868,000. There is a valuer's report putting the market value at that date as $4.5m.

31. The Defendants have not sought to dispute either that approach or that valuation. Accordingly the Plaintiff is entitled to damages at $2,368,000 under paragraph 5 of the Originating Summons.

Interest

32. There will be interest at savings rate from the date of the Originating Summons until judgment, and at judgment rate from judgment until payment.

Costs

33. I will give an order nisi that the costs follow the event, that is, that the Defendants bear the Plaintiff's costs to be taxed if not agreed.