WONG ON NA v. HARBOUR WELL DEVELOPMENT LTD.

HCA 1010/2000

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1010 OF 2000

____________

____________

_______________

J U D G M E N T

_______________

New Territories Small House Dispute

1. In this action the Plaintiff (P) seeks an order for rescission of a Provisional Agreement (PA) relating to the P's intended purchase of a New Territories Small House on the basis of the Defendant's (D) repudiation of that agreement or, alternatively, a Declaration that the PA had been rescinded by the P. The P seeks repayment of the deposits of HK$570,000.00 paid to the D, together with interest. The P also seeks damages for breach of the PA, a Declaration that she is entitled to a lien on the suit property for the deposits, interest, costs and expenses incurred by her and costs of the action.

2. The D counterclaimed originally for specific performance and alternatively for damages for breach of the PA, but at trial elected to seek damages only.

Facts

3. There was no dispute about the background facts and relevant dates of the transaction.

4. The suit property was the First Floor of a 3-storeyed Small House to be built on Section K of Lot 226 in Demarcation District No. 106 registered in the Yuen Long New Territories Land Registry.

5. The licence to build was granted on 27 March 1997, to Tsang Tim Wah, who, as an indigenous N.T. male, was entitled to erect a Small House for his own habitation, either on land registered in his name, or land given to him in return for the surrender of land elsewhere, pursuant to the New Territories Small House policy, in force since 1972.

6. The D, the developer of the project, was appointed as Tsang's lawful attorney and D appointed Bright Investment Ltd as its agent to receive deposits and to deal with matters relevant to changes of purchasers.

Small House Procedure

7. The Government has set strict limitations on the nature and type of building to be erected as a Small House and a fixed procedure for the development of the building must be followed. Progress is assessed at intervals by the relevant District Land Office and payment of a premium is required when all procedures are completed.

8. Once a Licence is granted the owner cannot assign, partition or mortgage without permission from the District Lands Office (DLO) which grants a Certificate of Exemption. Here that Certificate was issued on 11-4-97. Building could then begin and sales from the plan could start.

9. After building and concomitant development is completed the owner must apply to the Government to pay the premium required to effect the removal of the alienation restriction. When the premium is notified to the owner and the sum is paid, a Certificate of Compliance (CC) is issued and the sale can then be completed.

10. To a large extent the rate of progress of the development depends not on the speed and skill of the builders and developers, but on the dates of application for and the eventual grant of, the Certificate of Exemption, payment of Premium and the issue of the Certificate of Compliance. Inspection of building works and issue of those documents is governed by the workload of the DLO for the relevant district and the dates when the DLO can arrange the inspections which necessarily precede the issue of the certificates. As the owner and/or developer cannot speed the issue of the documents by the DLO once they have been applied for, it follows that any PA cannot specify the exact date of completion.

History of Suit Premises

11. The owner initially sold the 3-storeyed house to be built, to Madam Cheung Siu-mei by an Agreement dated 26 July 1997; she, in turn, sold the 1st floor of the suit property, to the P by PA dated 13 October 1997. By that date the building was completed up to the 1st floor. The P inspected the property before signing the PA. The sale price was HK$1,900,000.00 and the P paid deposits amounting to HK$570,000.00. The P also paid a transfer fee of HK$8000.00, for the administrative costs of the transfer, to Bright Investments. The balance of the purchase price had to be paid by a single payment "within 21 days of the Purchaser being notified that the vendor has completed all the necessary procedures of title deeds".

12. What is headed as a "Summary" in the PA preceding the terms and conditions, sets out the requisites of the Small House procedure and states that the P should clearly understand that the registered owner cannot assign the property to the P before the Government's notification of the payment of premium and that the P should "quietly wait" for the registered owner to arrange for the completion of "all the relevant necessary procedures within the expected period". Various clauses follow and a "Note" at the end provides that both parties acknowledge that they are clearly aware of the provisions and are willing to comply with them.

13. Other clauses set out:

"(1). that the P should sign the formal Agreement for Sale and Purchase (ASP) within 7 days of being notified that the CC and the notification of premium have been issued and complete within 14 days after that, failing which the D could rescind the ASP and forfeit the deposits.(Clause 1)

(2). the D was responsible for payment of premium to the extent of HK$600,000.00 and the P was responsible for one-third of the excess over that amount. (Clause 3)

(3). that if the P failed to pay any part of the purchase price, or abandoned her right to purchase or breached any term or condition of the PA, the D had the right to forfeit all deposits and cancel the P's right to purchase the property. (Clause 2)"

There was no condition that time was of the essence. No indication of what was a likely date for completion was given; nor was there any explanation of what was understood by "within the expected period".

14. It was the P's case that the PA contained an implied term that the D should obtain consent from the Government within a reasonable time of the issuance of the CC or exemption and that the D had failed to do so. Alternatively it was alleged that there had been an oral promise made by the D's agent, Bright Investments, that the process for obtaining the consent would not take more than 2 years.

Plaintiff's evidence

15. The evidence about the alleged promise came from the P who said that when she signed the agreement she did so at Bright Investment's office, where a Miss Fong (DW1) dealt with her. The P was accompanied by her husband. She enquired when they might be able to move into the property and was told by Miss Fong that she, the P, had seen the progress for herself when visiting the site, that completion would be approximately mid-1998 and at most it would be the end of 1998 when they could move in. Miss Cheung, the former purchaser, was present with Miss Lam her property agent and, according to the P, they reiterated what was said by Miss Fong.

16. The P before she signed asked why that date was not written into the agreement and was told not to worry about it as that was the situation when buying a small house. She claimed she would not have signed the agreement unless reassured about the date of completion, as she was expecting a baby in December 1997 and wished to have more attractive premises for that reason and also because her father intended to live with her. She said that in 1997 she was living in a Small House which she bought around 1994. It had taken only a month to complete that purchase and a date for the completion was included in the agreement.

17. In December 1997 the P made the third payment required to be paid on completion of the third floor of the building. She inspected the property in January 1998 and found the building was completed and fence walls had been erected. She made enquiries of Miss Fong who told her procedures were in progress and told her to wait. A further inspection showed work was completed at the site. Another enquiry of Miss Fong resulted in her being given a number to ring to make enquiries, but no date for completion. In August 1998 she first sought legal advice and in Dec 1998 she sought legal help from another firm. Eventually, a letter from the D's solicitors, dated 9 August 1999, demanded she complete the transaction, but only on receiving a letter dated 16 August 1999 did she appreciate that the CC had been issued on 24 May 1999.

18. The P's husband generally supported his wife's account of what had taken place at the signing. He admitted that his wife was wholly responsible for the transaction, said that he had not read the PA and did not know how many documents his wife signed. He confirmed that Miss Fong had told them completion would be the middle to the end of 1998 and said they would not have bought the property unless given a date of completion.

19. I did not find the P's husband a convincing witness, not least because cross-examination revealed him to be either obstructive, or selectively forgetful about matters relating to the property transaction. He asked often for simple questions to be repeated, and frequently left long pauses before answering, or trying to answer, questions. His memory about the transaction appeared vague, except where it was supporting his wife's account of her request for a completion date. He was unable to recall reliably the date or dates when he inspected the property. He denied knowing that the date of completion was uncertain because of the need to comply with government formalities. He said he had left the matter to his wife to deal with as he was occupied with his own business.

Defence Evidence

20. Miss Fong who worked as a secretary for Bright Investments, gave evidence about the signing of the PA - she asked the P to check the particulars of the property and her previous details. She explained the sequence of payments and the P read the PA. She said when the P asked why no date was put down for completion she told her it was because for Small Houses there were a lot of procedures which had to be processed by the DLO and were thus beyond their control. She denied telling the P that completion would be the middle or at latest the end of 1998 and denied that Madam Cheung or Miss Lam had said so. She confirmed the P's husband was present, but did not know whether anyone other than P read the PA.

21. Mr Chung Chau-wah (DW2) was a director of the Defendant developer and had been in the business of building Small Houses for 10 years. He confirmed that a CC was not issued until the construction was completed - that included internal partitions, drainage, electricity and water and might include external features - overall the house too had be completed.

22. Construction from a bare site usually took a minimum of one year. Mr Chung agreed it was the developer's responsibility to hand over the completed house as soon as possible. Application for the CC was granted only after 2 inspections by the DLO, but the developer had no right to decide on the dates for those inspections, that was for the DLO to decide.

23. He pointed out that it was in the developer's interest to hand over a house as quickly as possible, so the balance of the purchase monies could be obtained and used to reduce the interest burden borne by the developer. On this development 70% of the purchase price was outstanding and the D was servicing interest on borrowings of HK$60 million.

24. In cross examination he agreed that two years to complete formalities on the suit property was a long time, but said he was happy with that time frame as other sites could take even longer. Based on his experience he estimated that the shortest time from bare site to completion of Small House formalities was around 3 years, but qualified that by saying that that would not be in the Yuen Long DLO area, but in the Tuen Mun DLO area. DW2 was not put forward as an expert on Small House procedures.

25. He denied having intentionally delayed completion, or having delayed unreasonably in applying for the CC, or the premium payment. The D had already spent HK$38 million on the development and construction costs were over HK$10 million. The tenor of his evidence was that it was not in a developer's interests to procrastinate when he wanted to recoup capital outlay and, presumably, profits as quickly as possible.

Chronology

26. The timetable for the procedures to be followed began on 23 March 1997 when the licence was granted. A Certificate of Exemption was issued on 11 April 1997. The P signed the PA on 13 October 1997. On 27 October 1998 the D, through its solicitors, notified the DLO that building works were completed. To that point there does not appear to have been any untoward delay given the size of the project and the date building began.

27. Once building was completed and the application was made the matter reverted entirely to a timetable imposed by the exigencies of the DLO workload. It was not until 24 May 1999 that the DLO granted Certificates of Compliance to the registered owner. On 25 May 1999 D's solicitors requested the DLO to issue the demand note for the premium to be paid.

28. On 11 August 1999, after the P complained of delay, D's solicitors wrote to the DLO enquiring about progress and on 18 March 2000, having had no response, they made further enquiry. No response resulted from the second enquiry. It is difficult to see what other action the D could take to hasten matters once the DLO was in charge; the P made no suggestion as to what should have been done.

29. The P alleged, by letter of 3 December 1999, that the D had committed a fundamental breach of the contract by delaying the delivery of the final Agreement for Sale and Purchase. A writ was issued on 22 February 2000.

30. Eventually, on 4 May 2000, the DLO Yuen Long granted consent subject to payment of a premium of HK$760,000.00. The D at that point could proceed with completion of the PA and on 5 May 2000 gave notice of completion to the P, in accordance with Clause 1 of the PA. On 19 May 2000, D paid the premium.

Implied Term

31. The P claims that there should be implied into the PA term that the D should complete the transaction within a reasonable time after signing the PA. The initiative for completing the necessary procedures was the responsibility of the developer. The P contended that because of the D's inactivity in pursuing the Small House procedures there was a delay of around 31 months from the date the PA was signed, although as building was completed in October 1998 the delay, if such exists, is short. The P complained that there had been a delay in applying for the CC on 27 October 1998, although there is no evidence specifying the details of such delay. The D notified the DLO of completion of building work and it was for the DLO to issue the CC thereafter. Why that was not done until 24 May 1999 appears to be a matter which is solely the responsibility of the DLO rather than of the developer.

Collateral Agreement

32. The P's case was that the P entered into the PA only on the basis of an alleged assurance by Miss Fong that completion would be effected by mid-1998 or, at most, the end of 1998. This term which was said by P to be implied into the PA, is material as it is a condition of entering into the agreement. Its breach by the D would allow the P to treat the PA as repudiated and would entitle her to a refund of the deposits.

33. I am satisfied having considered the evidence of the witnesses that no such assurance was given by Miss Fong about the date of completion. It is clear from Miss Fong's evidence that she was well aware of the delays that could ensue when dealing with Small House development and I consider, having heard her evidence, that it was highly improbable that she would have sown any false hope in the mind of the proposed purchaser as to an early, or a fixed, completion date.

34. It may, possibly, have been within her capacity to give an estimate as to the date of completion of the building works, because that would have been a comparatively simple matter, relying as it did on matters within the developer's control and knowledge. There is however no evidence that she gave any such estimate and I find that she did not give the assurances the P claims she did in respect of completion of Small House procedures.

35. Any promise as to completion date would mean that Miss Fung had to make guesses or estimates about the workload, or timetable, of the particular DLO governing the development and assumes that she was privy to knowledge of the exigencies of the DLO's operations. If she was so foolish as to make promises of that nature, her job as agent of the developer would become untenable, as irate purchasers would hold her to account whenever the predicted dates were not met.

36. The PA set out clearly the obligations of both parties under the Provisional Agreement. It was drafted to take account of the vagaries of the Small House procedures; for that reason a definite completion date was not given because it was impossible to do so. The completion date was expressed clearly as being conditional on certain procedures being concluded. It is difficult therefore to see why such a term as the P suggested should be, or needed to be, implied into an agreement which went to some lengths to make it clear how and when completion had to take place.

37. The PA makes it very clear just how indefinite any completion date might be. The explanation of the Small House procedures: the requirement that the P waits quietly for completion; the linking of completion to the successful outcome of a number of applications, none of which it is in the power of the developer to expedite once they have been made, all suggest even to the most casual reader that uncertainty as to the completion date is in the nature of the contract.

38. The P was not a casual reader. She was a contracting party who had had time to read and consider the PA, which was explained to her. Her husband had the opportunity to read it also, although in evidence he claimed to have had only a quick glance. The P admitted that she knew from her previous experience as a Small House purchaser the need for consent from the DLO, for a premium payment and knew too that the completion date could not be fixed beforehand. She alleged that she had on that occasion been given a completion date.

39. The P relied on Johnson v. Humphrey [1946] 1 All ER 460 which stated that if no date for completion was fixed in a contract, the law implies that completion is to take place in a reasonable time, such time to be assessed with reference to the legal business necessary to investigate the title and prepare conveyancing documents. However, in the instant case a completion date had been fixed with reference to completion of necessary Small House procedures and had been agreed by the parties - thus there is no need for this court to intervene by implying a date for completion.

Breach of Agreement - Delay

40. The P alleged in its Statement of Claim that the D had breached the PA by failing to procure consent from the Government for sale and purchase of the property; by failing to tender a formal ASP and failing to ender a satisfactory explanation to the P. The allegations related to an absolute failure by the D to do these things, but at trial it appeared the argument related to an alleged failure to do these things within a reasonable time.

41. The P submitted that it was the developer's duty to drive the project to completion within a reasonable time and dwelt at length on the chronology of events from the date the PA was signed. The complaints of delay related to the time taken in obtaining the necessary consents, inspections, approvals and certificates of the Small House procedure.

42. It was, however, for the P to prove the excessive delay and apart from relying on the chronology of the development and the eventual issuance of the CC, there was no evidence adduced to establish that the alleged delay in completion was in any way unusual or excessive, given that this was a Small House development. The P went into this purchase with her eyes open; she had bought a Small House before, albeit at a different stage of development; the PA was clear and had been explained to her.

43. Once the building was completed the D set in train the procedures to obtain the CC and after that there is no evidence to establish that the alleged delay can be attributed to the developer's inactivity. Delay, such as it was, appears to have been caused by the mysterious and rather slow workings of the DLO from the time the D notified the DLO that buildings works were complete.

44. There does not appear to have been anything the D could have done to hasten proceedings. Mr Chung, when asked to explain the 4 month gap between one letter enquiring of progress and the next, told the court that the DLO was too slow and that it was useless to chase them at too early a stage with a repeat enquiry - an answer which had the ring of truth about it.

45. Insofar as the P based its case on excessive delay I hold that there has been no evidence put before the court to establish either that there was delay, or that any blame should attach to the D for it, if it existed. I dismiss the P's claim and enter judgment for the D in respect of its counterclaim in this action.

Damages

46. Although the purchase price of the premises was HK$1,900,000.00, the downturn in the property market has affected its current value. A valuation report prepared by Vigers Hong Kong Ltd based on an inspection of 1 September 2001, was produced by the D and put before the court by agreement. The P did not obtain a separate valuation. No other evidence as to value was put before the court and, having considered the contents of the report, I accept it as providing the current market value on which to assess damages due to the D in terms of its Counterclaim.

47. The difference between the purchase price and the valuation is HK$900,000.00. Credit is given to the P for the $570,000.00 paid to the D in 1997.

48. The balance of $330,000.00 is required to be paid to the D together with interest on that sum at half judgment rate from date of Counterclaim to date of judgment and thereafter at judgment rate until payment in full.

49. There will be an order nisi for costs of the action to be to the D, such costs to be taxed if not agreed.

50. It is ordered that the Plaintiff's writ registered against the suit property is to be vacated.

51. Liberty to apply.