TSANG CHUN WAI v. HING LUNG HOLDINGS LTD AND ANOTHER

HCA624/2007

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 624 OF 2007

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J U D G M E N T

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1.  By a written agreement dated 2 October 2004 (“the Agreement”), the Plaintiff (“Tsang”) agreed to purchase a three storey house (“the House”) to be built by the 1^st defendant (“Hing Lung”) on a piece of land in Tai Po known as Sub-section G1 of Lot 1604 in D.D. 17 at the price of HK$4.5m. 

2.  Such a house is commonly referred to as a “Ding House”.  The 2^nd defendant (“Lee”) did not sign the Agreement.  However, he is referred to in the Agreement as the “Owner”.  As stated in the Recital to the Agreement, Hing Lung was the “Attorney” and it signed the Agreement as the “Attorney of the Owner”[1]. 

3.  The land search record [Bundle D/ p.174] confirms that Lee was (and is) indeed the owner of the Land in question.  It is common ground that Hing Lung was the developer under the Agreement such that the construction of the House was under its charge. 

4.  It is also common ground that the House is a unique one in terms of its quality.  It has an excellent location facing the south with an unobstructed sea view.  It has a garden and is easily accessible via both public transport and private vehicle. 

5.  In accordance with the terms of the Agreement, five part payments of the purchase price have been made by Tsang, leaving a balance of HK$3.15m to be paid upon completion of the sale.  However, the 5^th payment was subsequently returned to him by Hing Lung due to certain dispute which no longer features in this trial. 

6.  In respect of the construction of the House, the topping-out of the superstructure was done in January 2006.  The Certificate of Compliance was issued on 24 January 2007 [C/16] and the construction of the House must have been completed by then. 

7.  It is undisputed that the transfer of the House is restricted such that a premium is required to be paid to the Government to remove the restriction and without the restriction removed the transaction in question cannot be completed.  By a letter from the Tai Po District Lands Office dated 18 April 2007 [D/149], a demand has been made to Lee for the premium of HK$834,600 (“the Premium”) to enable the assignment restriction to be lifted.  The central dispute in this action concerns the obligation to pay the premium under the terms of the Agreement – whether it is the obligation of the defendants or Tsang to pay the Premium.  It is common ground that the answer to this dispute rests on the proper construction of the relevant provisions of the Agreement.  

8.  Due to the dispute over the obligation to pay the Premium, the transaction has yet to be completed.  It appears that the Premium remains unpaid to date.  The facts stated above are uncontroversial. 

9.  The issues in this case are not complicated.  The parties have very helpfully agreed a List of Issues as follows (with minor modifications of this court):

(i)  whether Lee is a party to the Agreement;

(ii)  if Lee is not a party to the Agreement, whether Hing Lung impliedly warranted its authority as agent of Lee and thereby induced Tsang to enter into the Agreement;

(iii) whether it is Tsang or the defendants who are liable to pay the Premium pursuant to Clause (4) of the Agreement;

(iv) if the defendants are liable to pay the Premium under the Agreement, whether Tsang is entitled to claim the loss of rental income in addition to the decree of Specific Performance and if yes, for what period he is entitled to claim and what are the market rents receivable during the said period.

10.  Before I deal with the issues, I would like to say that it is an unusual feature of this case that most of the evidence adduced in this trial has little bearing on the resolution of the issues.  For instance, a good deal of energy has gone into what the parties think the Agreement means.  Plainly, as is accepted by Counsel on both sides in their final submissions, such evidence is unhelpful and inadmissible :

“Interpretation [of contract] is the ascertainment of the meaning which the document would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract. ...”

per Lord Hoffmann in Investors Compensation Scheme Ltd v. West Bromwich Building Society, HL, [1998] 1 WLR 896 at 912H.

Whether Lee is a party to the Agreement

11.  With respect, I do not believe that there can be any doubt on this issue.  Plainly, Lee is a party to the Agreement.  He is referred to in the Agreement as the owner and the document was made on his behalf by Hing Lung.  To complete the picture, a Power of Attorney, which is not disputed, has been produced to this court [D/12].  Pursuant to that document, Hing Lung was appointed as Lee’s Attorney on 19 April 2004. 

12.  To his credit, Mr Yip, who appears for the defendants, has not advanced any argument to suggest why Lee is not a party to the Agreement.  Given my finding on the first issue, the second issue must fall away.  (In fact, Mr Yip has, quite rightly, conceded the second issue in his final submissions.)

Clause (4) of the Agreement

13.  It is common ground that the relevant clause under the Agreement which governs the obligation to pay the Premium is Clause (4) on page two of the Agreement.  The agreed translation of Clause (4) is as follows :

“Both parties understand that the completion of the sale and purchase of the Property can only be done after payment of the land premium to the Government.  Party A agrees to be responsible for paying the related said premium to the Government.  Party B agrees that the upper limit of the land premium payment borne by Party A should be set as HK$  per house.  If the amount exceeds the limit, it shall be equally borne by the purchaser(s) of each storey, and the premium shall be paid to Party A within 14 days after Party A receives notification of the land premium from the Government.”

14.  Under the Agreement, “Party A” is the vendor and “Party B” is the purchaser.  On any objective reading of Clause (4), it must strike the reader that the second sentence provides clearly that the premium obligation is on the vendor.  Further, given that the amount in the following sentence has been crossed out, on the face of the provisions, there is no limit to the vendor’s premium obligation. 

15.  Mr Yip has advanced an interesting argument as follows.  Notwithstanding the second sentence, the fact that the amount under the third sentence has been crossed out means that the vendor’s premium responsibility is HK$0.  Accordingly, the way in which the clause has been amended (the crossing out of the amount) means that the obligation to pay the Premium is on the purchaser. 

16.  With respect, I cannot agree with this construction of Clause (4).  It is common ground that the premium, whilst the amount of which was unknown at the time of contract, was expected to be a significant sum.  It must be right to expect the parties to have dealt with this liability in a clear manner.  As I said, the second sentence leaves no room for argument and I cannot see why that sentence was not crossed out if it were the common intention that it was the purchaser who was to pay the premium. 

17.  Further, I am not swayed by Mr Yip’s argument.  Prima facie, the deletion in the third sentence conveys the message that there is no limit to the vendor’s premium liability.  Mr Yip’s argument involves ignoring the reference to “upper limit” in the third sentence and is a very unusual way of saying that the premium liability is on the purchaser.  I have no difficulty in rejecting the argument.

18.  Before I proceed further, I shall deal with two other points raised by Mr Yip.  Firstly, he relies upon the contra proferentem rule to argue that because the deletion was made by Tsang’s agent, Ms Law, the ambiguity should be resolved against Tsang.  I am not attracted to the argument.  To begin with, I am unable to see any ambiguity in Clause (4) so as to justify the invocation of the doctrine.  Further, it is common ground that the Agreement was a standard form contract used by Hing Lung. 

19.  Secondly, Mr Yip submitted that his witness, Mr Wan, who gave evidence on behalf of Hing Lung said in cross-examination that Ms Law told him before he signed the Agreement that the developer was not obliged to pay the premium and that the amount in Clause (4) was deleted accordingly.  Mr Yip said that such evidence was not challenged by Mr Lam, who appears for Tsang.

20.  I am not impressed by this piece of evidence.  There is no claim by the defence for rectification of the Agreement or any claim which suggests that Hing Lung was misled in signing the Agreement.  Further, Mr Wan was an experienced man in the real estate business.  I find it very difficult to believe that he would have signed the Agreement with Clause (4) clearly stating that the premium liability was on the vendor had he been told otherwise by Ms Law.

21.  For completeness, I should mention that although there is, on the face of the Agreement, some room for argument whether the premium liability rests with both Lee and Hing Lung, it is not a live issue before me.  It is implicit from the formulation of the third issue that the defendants accept that the premium liability either falls on Tsang or on them.

22.  Finally, Mr Yip has very sensibly agreed that should I find in favour of Tsang on the premium issue, there is no dispute over the relief of specific performance which is the preferred remedy for Tsang.

Damages in addition to Specific Performance

23.  There is no controversy that if this court finds in favour of Tsang on the premium issue, the defendants are responsible for the delay in completion.  The delay has resulted in loss to Tsang and such loss is represented by the loss in rental value for the period from the contractual time for completion to the date of actual completion (see McGregor on Damages, 17^th ed., §§22-010 to 011).

24.  In addition to accepting the above legal principles, Mr Yip has very fairly agreed that the date when the Agreement ought to have been completed is the 1 June 2007.

25.  Hence, the only dispute here is the market rent.  There are only two pieces of evidence in this regard, both of which suggest that the market rent is HK$25,000 per month.  Firstly, the evidence of Tsang’s expert, Mr Lo.  I am not impressed by this part of Mr Lo’s evidence.  He has not been able to find any appropriate comparable for purpose of assessing the market rent.  Instead, he can only rely on the information of one rental transaction as shown on a Stamp Certificate [C/20].  I agree with Mr Yip that this evidence is quite unsatisfactory as the terms of that lease are not known.

26.  Secondly, I have the evidence of Tsang and his witnesses, Mr Chiu and Ms Law concerning an oral agreement to let the House to them at HK$25,000 per month made in March 2006.  Mr Chiu and Ms Law are husband and wife and Tsang is Ms Law’s nephew.  Ms Law was (and is) an estate agent and the purchase of the House was conducted with her assistance.  I was told by Tsang in evidence that the said rent was the market rent and that, as he lived around the area, he had carried out some research himself to confirm that it was so.  This part of the evidence is hotly contested.

27.  I decline to accept this part of the evidence.  One has to bear in mind that in March 2006 there was no firm date for the completion of the transaction.  Further, given the dispute between the parties at the time, I have to be vigilant to the possibility that the evidence was engineered to put pressure on the defendants to go through with the sale.  In the circumstances, I look for cogency in the evidence.  I find the evidence of Tsang inconsistent with that of Mr Chiu on when the House was needed for his family to move in after he sold his own property.  I noticed that Tsang’s demeanour shifted when he was cross-examined on this issue.  He looked uncomfortable.  Furthermore, the uncontested evidence is that Mr Chiu and his family moved to live in premises costing only HK$5,500 per month for one year from 1 October 2006.  He said that those premises were too small for his family and on 1 December 2007 they moved to another premises at the rent of HK$18,000 per month.  Such evidence cast some doubt on whether Mr Chiu and his family were really looking for a more expensive residence at HK$25,000 per month. 

28.  In the premises, I do not believe that the evidence in question is of sufficient cogency for me to rely upon it.  However, there is no evidence led by the defence as to the market rent in question.  Before I come to my conclusion, I should mention that the award of damages here should reflect the fact that Tsang is not required to pay the full purchase price until completion.  Hence, he has benefited from the use of the balance of the purchase price.  No evidence has been presented to demonstrate the value of this benefit. 

29.  In the absence of satisfactory evidence and doing the best I can in the circumstances, I hold that the loss of rental value should be assessed at HK$18,000 per month.  I do not believe that a separate award of interest in respect of the damages is justified in the circumstances of this case.  (It has not been asked for in Mr Lam’s final submissions.)

Conclusion

30.  In conclusion, I allow Tsang’s claim against the defendants and dismiss the Counterclaim of the defendants.  I grant the following relief :

(i)  the Agreement be specifically performed;

(ii)  damages to Tsang in the sum of HK$18,000 per month from 1 June 2007 until completion of the sale under the Agreement (“Completion”);

(iii)    such damages be deducted from the balance of the purchase price payable by Tsang upon Completion.

31.  I also make an order nisi that the costs of this action be to Tsang to be taxed if not agreed. 

[1]   This reference is missing on the certified translation of the Agreement [D/26].