TSUEN WAN PROPERTIES LTD. V. PAN WILL LTD.

1992, No. M.P. 2637

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

MISCELLANEOUS PROCEEDINGS

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J U D G M E N T

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1. By assignment dated 11th October 1991, the 1st Plaintiff as vendor and the other Plaintiffs as confirmors assigned to the Defendant Shop 121, Ground Floor, Podium B, Riviera Gardens, Tsuen Wan, "as shown and designated 121 on the Ground Floor plan attached ereto and thereon coloured pink". The Plaintiffs now seek rectification of the assignment by substituting a plan on which a staircase and entrance thereto which adjoin the shop are excluded from the pink area. The Defendant counterclaims for a declaration that part of the entrance area was intended to be assigned to it, and for rectification accordingly.

2. The 1st Plaintiff was the owner of various hops, stores and other areas on the Ground Floor, 1st Floor and Podium Level of Podium B of Riviera Gardens. Included amongst these premises were Shop 121, a supermarket on the 1st Floor above Shop 121, and a staircase leading from the supermarket to the Ground Floor emerging through double doors into the street immediately adjacent to Shop 121.

3. By sale and purchase agreement dated 25th July 1989 (the first Agreement), the 1st Plaintiff agreed to sell its premises including Shop 121, the supermarket and the staircase to the 2nd Plaintiff. By successive sub-sale agreements, the 5th Plaintiff became equitable owner of all these properties. On 13th August 1991, the 5th Plaintiff entered into a provisional sale and purchase agreement with the Defendant for the sale and purchase of "Shop No. 121 on the Ground Floor of Podium B" subject to an existing tenancy of the Standard Chartered Bank. The provisional agreement was signed by a director of the Defendant, Tong Yat Kai (Mr. Tong). No plan was attached to the provisional agreement.

4. Pursuant to the provisional agreement, the Plaintiffs' solicitors sent the Defendant's solicitors a draft formal agreement. That draft agreement had attached to it a plan showing Shop 121 the adjoining staircase and entrance coloured pink. That agreement was approved and executed on 5th September 1991. An assignment, to which was attached a similar plan, was subsequently executed and the transaction was completed on 11th October 1991. Prima facie, the Defendant had had assigned to it Shop 121 and the adjoining staircase and entrance.

5. I interpolate here for the sake of clarity that I am concerned with three separate areas. First, Shop 121 proper, a standard self-contained shop space. Second, the staircase which adjoins the shop and which leads from the supermarket on the floor above to the street level. There is no connection between the staircase and the shop. Access from the staircase to the street is through double wooden doors. These doors are recessed from the outer surface of the exterior wall of the building. The entrance so formed measures about 0.5 metres by 2 metres. This entrance is the third area. It has been called the strip and I shall continue to use that name for it. The distinction between the staircase and the strip was not immediately appreciated by the parties.

6. On 11th November 1991, the Plaintiffs' solicitors wrote to the Defendant's solicitors in the following terms:

" We found that the staircase as shown and coloured pink on the plans thereto annexed has been inadvertently coloured. According to our record, the saleable area of the said premises mentioned in the Agreement for Sale and Purchase Memorial No. 523495 is 81 square metres which should not include the said staircase. Copy of the said plan with the staircase coloured pink is hereto enclosed for your easy reference.

In order to rectify the discrepancy, we will prepare a Confirmatory Assignment of the said premises for your client's execution."

7. By reference to the plan attached to that letter, it is plain that the Plaintiffs wished to exclude both the staircase and the strip. The Defendant did not reply formally until 24th April 1992. The delay was partly because it had been necessary to consult the Defendant's mortgagees. In their reply, the Defendant's solicitors said:

" We are instructed that no physical inspection of the above premises had taken place before the sale and purchase of the same was entered into.

Our client had been relying on the plans as shown in the sales brochure and also the verbal representations of your client's sale representative in relation to the physical lay-out of the said premises.

Our client was surprised to be informed now that the Assignment Plan for the sale and purchase of the captioned premises had been wrongly coloured. Apparently, this had never been discovered in the various documents affecting title to the captioned premises until very recently.

Our client has instructed us that it is not prepared to reopen this matter in view of the fact that the sale and purchase of the said premises had been completed quite some time ago."

8. At this point, the distinction between the staircase and the strip was beginning to emerge. The 4th Plaintiff's sales brochure had coloured the strip but not the staircase as part of Shop 121.

9. On 23rd May, the Defendant, through his solicitors, demanded delivery of vacant possession of the staircase, meaning both staircase and strip. The Plaintiff's solicitors replied on the same day saying:

" We refer to your letters of the 24th April 1992 and 23rd May 1992.

In the 4th paragraph of your letters of the 24th, it is declared that your client had been relying on the plans as shown in the sales brochure.

On further examination of the sales brochure, copy of which is hereto enclosed, we found that the area of the above premises therein coloured blue only includes the shop front but not the staircase.

We therefore request your return of the Confirmatory Deed together with the plans sent to you on 20th January 1992 and we shall send you a fresh Confirmatory Deed together with the relevant plans for your approval, failing which our client will take appropriate legal action without further notice."

10. The phrase "Shop front" in that letter means the strip. Implicit in that letter was that the Plaintiffs were prepared to accept that the Defendant should have the strip. The Plaintiffs' solicitors, however, followed up that letter on 3rd July. After reviewing the situation, they said:

" We hereby expressly deny that our client or its representative (s) has made any representation relation to such layout. Even if such representation has been made, which we hereby deny, we would like to draw your attention to clause 27 of the Agreement. It is stated that if any warranty or representation relating to the said premises had been made, the same was withdrawn or deemed to have been withdrawn prior to the signing of the Agreement.

In the event, we request your client to execute and return the Confirmatory Assignment sent to you on 20th January 1992 within 5 days from the date hereof failing which we have firm instructions from our client to institute legal proceedings to rectify the mistake without further notice."

11. By that letter, the Plaintiffs, quite plainly, were seeking exclusion of the staircase and strip from the plan attached to the assignment.

12. Further correspondence ensued revolving around the quantitative area which was to be assigned. In my view, and I think that of counsel, nothing turns on this. Ultimately, no confirmatory deed having been executed by the Defendant, the Plaintiffs issued an Originating Summons on 26th August 1992 which, pursuant to an order dated 26th October, proceeded as if commenced by writ. The Plaintiffs filed their Statement of Claim on 2nd November, the Defendant its defence and counterclaim on 9th November. The Defendant confirmed that it had always been willing to relinquish its claim to the staircase, and sought rectification to include the strip on the plan to the assignment. It relied upon representations contained in the 4th Plaintiff's brochure and made by the 4th Plaintiff's salesman who allegedly said that the plan "should have correctly shown the area of Shop 121".

13. Mr. Li for the Defendant accepted that both the Plaintiffs and the Defendant had made a mistake about the staircase. He submitted, however, that there had been no mistake about the strip. If that submission was not accepted, he argued that the Plaintiffs alone had made a mistake by including the strip in the brochure plan.

14. It is the Plaintiffs' case that the colouring on the plans in the formal sale and purchase agreement, the assignment and the brochure was incorrect. According to Miss Ng Yin Yue, Barbara, the sales manager of the 4th Plaintiff, the error was on the part of the draftsman of the plans, possibly contributed to by the fact that the staircase and strip were coloured on the plans attached to the first Agreement. Those plans, of course, related to all the premises owned and sold by the 1st Plaintiff. Miss Ng said that the 4th Plaintiff always intended to reserve the staircase and strip for sale to the purchaser of the supermarket on the 1st Floor in order to comply with the Building Authority's requirements. In cross-examination, Miss Ng agreed that the staircase and strip are not used as an entrance. She said they are not normally used by customers but used as a fire exit which is a must in law. She agreed that the doors are usually closed.

15. There can be no possible doubt that the Plaintiffs made a mistake in colouring the plans in the formal sale and purchase agreement, the assignment and the brochure. The staircase and strip have no connection with the shop but every connection with the supermarket on the floor above to which, as Miss Ng said, these were to be reserved. I accept that the mistake on the brochure is more difficult to comprehend. The suggestion by Mr. Tong, however, that it occurred to him that the doors were intended to be placed a few feet farther away from the shop, on the other side of a fire service inlet, but had been moved to their existing position for convenience and security purposes is wholly without merit. Indeed, so without merit is any suggestion that the Plaintiffs were not mistaken about the strip that I am surprised it has been pursued with such vigour.

16. In coming to that conclusion, I have taken into account the various points made by Mr. Li. He said that in support of the alleged error on the part of the draftsman there is only one piece of hearsay evidence, namely a letter from the Plaintiffs' architect saying that the assignment plan should not include the staircase area. He pointed out that the Plaintiffs advanced no explanation for the alleged error in the plans in the 4th Plaintiff's brochure and in the tenancy agreement with the Chartered Bank both of which include the strip. He reminded me that the correspondence to which I have referred suggested that, at one stage, the Plaintiffs impliedly accepted that the inclusion of the strip was not a mistake. Finally, he said that Miss Ng, in cross-examination, had with great reluctance disclosed that she had enquired of the architect whether it might be possible to move the doors away from the shop. She said that the advice which she received was that perhaps it could be done.

17. Mr. Tong gave evidence for the Defendant. He together with his wife are directors of that Company. He was looking for investment for the Defendant. He went to Riviera Gardens and visited the 4th Plaintiff's sales office where he obtained the brochure. As advised by the 4th Plaintiff's salesman, Mr. Man Shu Tak, he went to look at various units. These units he found to be too small for his purpose. While returning to the sales office, however, he saw Shop 121 occupied by the Standard Chartered Bank. He did not go in but he was impressed by the large front door and took note of the Bank's sign which extended above the front of the shop. That sign, I note, does not, by any means, extend to the limit of the premises.

18. At this stage, it did not occur to him that the strip and what lay behind the doors belonged to Shop 121. He took out the brochure which had been supplied by Mr. Man and identified the Shop on page 2 thereof. He said that he compared the plan on the brochure with the shop and came to the firm view that the strip was part of the Shop. It did not occur to him that the strip, being in front of the doors, could present problems. He said that he thought the doors might have been moved from their designed position some feet away beyond a fire service inlet.

19. Mr. Tong returned to the sales office. He said that after discussion he decided to buy the shop relying upon the plan in the brochure and upon Mr. Man's confirmation that the brochure correctly showed and stated the area. Mr. Man denied that Mr. Tong asked about the brochure.

20. I have no hesitation whatsoever in rejecting Mr. Tong's evidence. For a businessman looking for an investment his evidence simply does not ring true. He was aware that the Shop did not connect with the staircase or strip. He was able sufficiently to read the brochure plan to understand that a staircase lay behind the locked doors and that it required egress to the street. If, as he suggested, there was a possibility that the doors had been moved from their intended position, any prudent purchaser whether buying for investment or occupation would have been put on enquiry. Mr. Tong's evidence was, I am afraid, palpable nonsense. I am completely satisfied that Shop 121 as occupied by the Chartered Bank was what he intended to buy. If his evidence had any merit then I would have expected, when the Plaintiffs' solicitors first drew attention to a mistake on 11th November, that the Defendant would have replied promptly to the effect that the staircase was not an item with which it took issue but that the strip was and was not a matter for negotiation. It is plain to me that, until the Plaintiffs' solicitors raised the matter, Mr. Tong had no idea that he might have acquired anything other than the shop space.

21. My view is, to some extent, reinforced by the importance of the provisional sale and purchase agreement. It is common ground that that agreement was binding upon both parties, and that the intention of the parties as to what formed the subject of the transaction is to be ascertained at the time when it was signed. No plan, as I have said, was attached to the provisional agreement. The provisional agreement contained only the description which I mentioned earlier. That description coupled with the recital of the existing tenancy, in my view, puts the matter beyond any doubt which I might otherwise have had.

22. In my judgment, the Plaintiffs have discharged the heavy burden which lies upon them in an action for rectification: "see Snell's Equity, 29th edition, p.626 - 633, and Emmett on Title, 19th edition para. 3.010 and 3.011.

23. It is not necessary for me to deal with the question of what area in terms of square metres was to be assigned to the Defendant. A considerable amount of time was spent on this point. There seems to be a divergence of expert opinion as to whether or not there is a difference in meaning between "saleable area" and "net area". This is compounded by the fact that the four Chinese characters commonly used can have either meaning. It is a matter to which the appropriate authorities might like to give attention.

24. In case anything should later turn on measurement, I can say that I would accept the evidence of the Plaintiffs' surveyor, Mr. Mok Leung-yiu. Mr. Mok carried out the measuring himself. His description of how he did this and of how errors arise was clear and convincing. In contrast, Mr. Cheung Kwok-ho the Defendant's expert did not do any measuring himself. Indeed, it is not clear whether he even visited the shop because his assistant, Mr. Yeung Shing-chi, did not mention Mr. Cheung as being present when he, Mr. Yeung, carried out the measuring on 2 occasions. Mr. Yeung's evidence is unsatisfactory. The impression he gave in his affirmation was that he went into the shop on the second occasion. In cross-examination, it became clear that he did not.

25. I would, however, accept Mr. Cheung's evidence that there is a difference between "saleable" and "net" areas. "Saleable" is as defined by the Law Society and HKICS and includes inter alia half the thickness of partition walls and the whole of others. According to Mr. Cheung, "net" is in effect the useable floor area. As he put it, it is the measurement you would take if ordering carpet.

26. In the circumstance, I give judgment for the Plaintiff as claimed in paragraph (i) of the prayer. The Plaintiffs are to have the costs of these proceedings including the costs of the hearing on 26th October, 1992. Whilst it is tolerably plain that there were going to be factual disputes and that the originating summons procedure was not apt, the hearing on 26th October usefully provided for the giving of directions and, overall, the proceedings between the parties have moved far more swiftly and with less costs than if they had been instituted by action.