SUN CROWN TRADING LTD v.HOLYROOD LTD

HCA 1158/2007

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1158 OF 2007

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BETWEEN

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R U L I N G

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Introduction

1.  This is the 3rd CMC in these matters which concerns the sale of a flat in respect of each action at “Oasis” a development on Peak Road.  In each case the purchasers have purchased their individual flats “off the plan” for sums in excess of $45 million.  That is to say the development was still in the process of being built when they agreed to purchase their flats.

2.  The common complaint in each action by the purchaser is that upon completion of their conveyances, having paid the full purchase price, their flats were grossly sub-standard in their construction and finish and that the common parts and the area surrounding the buildings were nothing more than a building site.  Much work still needed to be done.  The flats were not habitable with the result that these purchasers now sue the Defendant, as the developer, for substantial loss and damage including, but by no means limited to, loss of rental income from the flats.

3.  What has happened is that there has been a recent change of counsel on each side, Mr Yeung for the Plaintiffs’ in the various actions and Mr Wilson Chan for all the Defendants.  Both of them have carefully considered the state of the pleadings, the witness statements and the documentary evidence and decided that various and important applications need to be made now, just over three months before the 15-day trial which is due to start in September.  At the first CMC, this is the third, with different representation I was told that the matter was more or less ready.  The present representatives appeared at the 2nd CMC and outlined the applications which they proposed to make at this CMC.  I am bound to say that these 9 summonses should have been before the court very much earlier although this complaint cannot be laid at the door of present counsel who are making and resisting the various applications which, as they see it, are in their clients’ best interests.

4.  It is convenient to take the Defendants’ summonses first.  There are two.  The first to strike out the action against one of the Plaintiffs on the basis that it, a limited company, has been wound up was unopposed and I have made the order asked for.  I need say nothing further about it.  The remaining summonses I will take in separate sub-headings in the Ruling.

The Defendants’ Summons to Strike Out Para.14 of the Statement of Claim

5.  The material part of para.14, without its particulars, is as follows:

“Wrongfully and in further breach of the said express terms of the Agreement, the Defendant failed to provide communal and recreational facilities to the Plaintiff, namely, a swimming pool, children’s play area and a gymnasium in that they will not ready for use at all.”

Thereafter four sub-paragraphs set out how the express terms of the Agreement have been breached in this regard. I will come to these particulars as I consider the argument of both counsel.

6.  Mr Wilson Chan has taken a short point which he says must result in para.14 being unsustainable and accordingly struck out.

7.  The point comes about in this way.  The Defendant’s obligation was to complete the development.  Clause 1(1)(g) defines it as:

“Under Clause 1(1)(g) of the Agreement, the Development is defined as ‘the residential development containing a podium (housing in car parking spaces and recreational facilities) and 3 residential blocks above the podium (two of which contain residential flats and duplexes and one of which contains a house) now being constructed or to be constructed on the land in accordance with the building plans and intended to be known as ‘8-12 Peak Road’’.”

The building plans are defined in Clause (1)(1)(a) to mean:

“the general building plans and specifications prepared by the Authorized Person and approved by the Building Authority under Reference No. 3055/96 and includes any approved amendments thereto.”

Mr Chan submits that the Defendant’s obligations under the Agreement were to physically complete the development as provided for in Clause 4(1)(c) of the agreement:

“… shall complete the Development in all respects in compliance with the conditions of the Government Grant and the building plans on or before the 31^st day of August 2005 subject to such extensions of time as may be granted by the Authorized Person in accordance with sub-clause 5(a).”

Clause 4(7) is of primary importance to Mr Chan’s submissions so I need to set it out:

“For the purpose of this Clause the issue of a Certificate of Compliance or consent to assign by the Director of Lands shall be conclusive evidence that the Development has been completed or is deemed to be completed as the case may be and nothing in this sub-clause shall preclude [Holyrood] from proving that it has complied with sub-clause (1)(c) above by any other names.”

8.  From all of this, Mr Chan says that the Defendant’s obligation was to complete the development as defined in clause 4(1)(c) above.  Clause 4(7) provides the means by which the Defendant can conclusively prove that it has duly completed the development under the Agreement. Clause 4(7) is therefore the contractual mechanism agreed between the parties so as to avoid any dispute or argument as to whether the Defendant had discharged the duty of completing the development.  By virtue of the properly issued Certificate of Compliance dated 30 June 2005, the Defendant is able to assert that it completed the development in compliance with the Conditions of the Government Grant and the building plans.  Mr Chan submits that this is the extent of its contractual obligations.

9.  When one looks at the particulars of the alleged breaches, Mr Chan says that one is required to look elsewhere for any redress, in this case to the Property Manager.  Under the Deed of Mutual Covenant (“DMC”) dated 19 July 2005 it is the duty of the Property Manager to manage the development in a proper, good and efficient manner and the Property Manager shall at all times be responsible for the management and control of the development (Clause 8.1).  It is his duty to keep the common areas and facilities in good and substantial repair, clean and tidy and appropriately decorated and lit [para.3(a), Sch.6 DMC].  Under para.3(b) of the same schedule, it is his duty to re-build any common areas and facilities, renew, improve and upgrade them … to a standard commensurate with a first class residential building.

10.  In such circumstances, Mr Chan submits that it was the responsibility of the Property Manager to put right the complaints relating to the swimming pool and to obtain a licence for it, as it was its responsibility to put right the complaints which are also particularised relating to the children’s play area and the gymnasium.

11.  Mr Yeung’s response is to say that the reliance by Mr Chan on the Certificate of Compliance is entirely misconceived.  The Plaintiffs do not dispute that the development as built by the Defendant measured up to the expectations of the Director of Lands who issued the Certificate.  The fact of the matter is that the Director of Lands was only concerned to see to it that the construction complied with the Government Grant and the building plans.  In other words that the development was constructed as shown in the approved plans.  The Director was in no way concerned with the contractual obligations of the developer Defendant as these appear in the sale and purchase agreements.  By way of example, Mr Yeung draws attention to the gymnasium.  He says that the Director when deciding whether or not to grant his Certificate would not be concerned whether the Defendant had installed the exercise equipment in the gymnasium.  Unsurprisingly, the building plans show no such equipment.  In respect of the swimming pool and the children’s playground, the Director did not have to concern himself with whether these could not be used because construction equipment and debris blocked access to these amenities.  What he was looking for was that the pool and playground conformed with what had been approved on the plans.

12.  The Plaintiffs’ complaint is that the Defendant had failed in its contractual obligations to provide these communal recreational amenities which could not be used.

13.  Mr Yeung’s argument proceeds in this way:  There is compelling evidence that the communal facilities were not ready for use.  The photograph album amply demonstrates this state of affairs and I need say nothing further about this.  Under Clause 10(e) the Defendant is required to provide these facilities.  Mr Yeung submits that under Clause 29 these obligations survive the Assignment of the individual flats to the Plaintiffs.  It is in these terms:

“The provisions of Clauses 10, 13 and 28 shall survive completion of the sale and purchase by the Assignment.”

Clause 10(e) says that:

“On the completion of the Development the vendor shall provide the communal and recreational facilities set out in Schedule 6.”

Schedule 6 identifies various indoor and outdoor amenities including the swimming pool, children’s play area and the gymnasium.

14.  Mr Yeung says that if Mr Wilson Chan’s argument is the correct one then Clause 10(e) and Schedule 6 would become otiose because the Defendant was in any event obliged to provide a swimming pool, gymnasium and children’s play area under Clause 4(1)(c).

15.  As to that, Mr Chan counters by saying that Clause 10(e) and Schedule 6 are not thereby rendered otiose.  They have a purpose, which is of ensuring that the communal and recreational facilities, including swimming pool, gymnasium and play area were properly included in the building plans, otherwise the Defendant might have difficulty in conclusively proving that its obligations have been properly discharged.

16.  Mr Chan also has a further argument on the effect of Clause 29 which is that it was put into the Agreement to negate the doctrine of merger.  Without Clause 29 the Plaintiff might not have a cause of action based on Clause 10(e) at all.  The doctrine says that where an executory contract is intended to be carried out by deed of conveyance, the contract “merges” into the conveyance. Therefore the final contract is what is contained in the conveyance (the Assignment in this case).  The executory contract having been subsumed into the Assignment cannot be used to enlarge, diminish or modify what is in the Assignment.  In such circumstances, Mr Chan submits that Clause 29 cannot now be used to say that this creates a continuing obligation to provide the facilities after the sale has been completed under the Assignment.  That obligation after completion is transferred to the Property Manager under the DMC and the Plaintiffs must seek their remedies from the Property Manager.

17.  Mr Yeung’s response to this is that quite apart from what he says is the true effect of Clause 29, it was the Defendant’s own contractors who made the recreational facilities inaccessible by stockpiling debris and building materials.  Additionally, the installation of the exercise equipment in the gymnasium is borne by the Defendant on completion of the building.  It cannot be the Property Manager who has to install such equipment and then have that expense reimbursed by the purchasers of the units.

18.  Under RHC, O.18 r.19, a strike out application will only be acceded to in the clearest of cases where the pleading is bound to fail.  It seems to me that notwithstanding Mr Chan’s submission that his application to strike out para.14 turns on a matter of interpretation of the Agreement, I am not disposed to say that the plea is one that it is bound to fail.  Mr Yeung has mounted a perfectly respectable argument that the correct interpretation is that Clause 29 is effective to carry forward the Defendant’s obligations under Clause 10(e) and Schedule 6.  The matter will need to be examined carefully at the trial.  As I am the trial judge, I do not want to say more than I already have on the merits of the competing arguments.  I am not disposed to say that para.14 as it is pleaded is bound to fail and that it should therefore be struck out.

19.  For the sake of completeness, I should say that notwithstanding the lateness of the application to strike out the para. it was open to Mr Chan to have made it even at this late stage.  The rule says that the application can be made at any stage of the proceedings.  It seems to me that lateness in respect of a successful application can be addressed by an appropriate order for costs which may include in order that is potentially, if not completely, adverse to the successful applicant for the striking out.  Such a point does not arise in these circumstances where the application has failed.

20.  As to the costs of this unsuccessful application, I propose to make an order nisi that the Defendant will pay the Plaintiffs’ their costs of the application in any event, to be taxed if not agreed, on a party and party basis. 

21.  I now turn to the Plaintiffs’ two summonses which are not contested.  These are the summons dated 27 April 2011 to file the witness statement of Marcelo Griselda and the other dated 1 June 2011 to adduce into evidence the supplementary report of Thomas Tang.  In these circumstances, I have made orders in terms of these summonses.  I now turn to the contested matters.

Summons Dated 20 May 2011 to File Supplemental Statement of Miss Lam Ngar See

22.  With this summons, as with the other contested matters, Mr Yeung has characterised what he seeks to achieve as a “tidying up exercise” which will assist the court in determining the various issues that require resolution in the trial and that such additions to the evidence and, as will be seen presently, amendments applied for in the statement of claim will cause the Defendant no prejudice.

23.  To this approach Mr Wilson Chan submits that all of this should have been done far sooner.  There is no excuse for this lateness in a case that has been on-going for some years and the court should exercise some discipline over the Plaintiffs.  Many of the changes to the statement of claim and the additional evidence sought to be put in can hardly merit the description of “tidying up”.  Much is new and substantial.  The Defendant who is now concentrating on the run up to the trial should not be distracted by these later additions to the Plaintiffs’ case.  Whilst some of the material sought to be put in is agreed, those parts that are objected to should be excluded.

24.  Turning to Miss Lam’s witness statement, this is a substantial document.  Substantively it runs to 27 pages.  The parts objected to are para.9 (page 3) to para.26 (page 7), and para.28 (page 7) to para.30 (page.15).

25.  Mr Chan’s objection to these paragraphs is that the matters that the witness wishes to give evidence about have not been pleaded and in such circumstances it is not right to allow evidence which does not support a pleaded allegation.  As to paras.9 to 26 this really relates to the surrounding circumstances to the sale and to its immediate aftermath.  As such it seems to me proper for this witness to give this evidence which is there to counter the Defendant’s case about the flats being sold as a bare shell, leaving it to the individual purchaser to fit out and decorate the property to his or her own individual taste.  And so, for this reason I will allow this part of the objected to statement to be adduced into evidence.

26.  As to paras.28 to 30, these are detailed, numerous and specific complaints about the standard of construction.  Miss Chan says a lot of this has not been pleaded and therefore should not be led in evidence.  Of the 18 defects in para.28 these have not been pleaded.  Mr Yeung says that all of these features have been photographed and referred to in the Plaintiffs’ expert’s report.

27.  My view is that the unpleaded complaints should be pleaded out.  I am going to allow this evidence to be led because it has already been raised in the Plaintiffs’ expert’s report.  There is no element of surprise about this.  Nevertheless, it should also be pleaded.  This is an essential pre-requisite to the evidence be admitted.

28.  Accordingly, I will allow this part of the statement in on terms that it is pleaded by amendment to the statement of claim.  I am satisfied that in the remaining time, where these complaints have been substantially referred to in the Plaintiffs’ expert’s report, the Defendant will be in a position to comfortably respond and be ready to deal with the allegations at the trial.

29.  I will therefore admit this statement into evidence on terms that the contents of paras.28 to 30 are pleaded by amendment within 14 days of this ruling.  The costs of and occasioned by this summons will be to the Defendant in any event which will include the costs of amending its defence and of preparing and filing any additional evidence in response to Miss Lam’s supplemental witness statement. I will give the Defendant 21 days to file its responses in terms of amending its defence and producing additional witness statements after the service on it of the Plaintiffs’ amended statement of claim.

30.  This order for costs will be an order nisi.

Summons Dated 27 May 2011 for Leave to Amend Statement of Claim

31.  Mr Chan objects.  He submits that the amendments in para.16 are wholly lacking in particularity.  The point being that the later the amendment that is sought, the less time the opposing party has to react to it and ask for particulars of it and press for any consequential discovery. This alone affords ground for refusing the proposed amendment.

32.  I agree entirely with Mr Chan’s complaint about the absence of particularity and the consequent failure of the proposed pleading to inform the Defendant of the case that it is supposed to meet.  I am going to disallow this amendment.

33.  As to para.22, Mr Chan says that the plea is bad in law as he has set out at para.1.3(b) of his skeleton.  It has to be said that if this is correct then the original pleading must also be bad.  It seems to me that the proposed amendment adds little to the original plea save for providing more detail.  I think the argument as to whether the plea is one that is bound to fail is an argument for the trial judge.  This point, in my judgment, is arguable and it should be allowed to go forward.

34.  I will therefore allow this amendment. 

35.  Lastly, the added particulars to para.24 should be allowed to proceed on the basis that any further discovery which relates to this should also be provided voluntarily within 14 days of this ruling.

36.  To this extent the summons succeeds.  The Defendant will have 21 days to make any amendments to its defence in each action and the costs of and occasioned by these amendments must be to the Defendant in any event. 

The Summons to Adduce the Supplemental Witness Statement of Tao Kwok Yu and the Supplemental Report of Law Sheung Ping Dated 27 April 2011 and 27 May 2011 Respectively

37.  Both of these are subject to the same objection by Mr Chan based on lateness and that their contents have not been pleaded in the statement of claim.

38.  I take these two summonses together because they face common objections.

39.  As to Miss Tao’s further witness statement, the objection really starts from para.8 (page 3).  This statement is an attempt by those representing the Plaintiff to go back to the beginning and start all over again.  It is very much a second go at the task of preparing a witness statement properly.  I have decided to let it in because it will not cause any surprises for the Defendant.  It has not altered the way the case has been put.  Secondly, I do not think that it can fairly be said that these points are unpleaded.  This statement fills in the evidence in support of the already pleaded facts and matters.  I will allow this statement to be adduced into evidence and give the Defendant leave to file any evidence in response within 28 days to include any supplemental expert evidence.

40.  As to costs, I am going to reflect the court’s disapproval of the practice of putting in such a substantial witness statement so late in the day.  The costs of and occasioned by the admission of this further statement into evidence will be to the Defendant, to be taxed and paid forthwith on an indemnity basis.  This will also be an order nisi.

41.  As to Mr Law’s supplemental report, again there is no reason why this was done far earlier, if not at the outset.  It is far reaching in its detail but again advances familiar complaints which have been previously canvassed.  Mr Chan objects to section 2 of Mr Law’s report on the basis that these matters are not pleaded.  I do not think this can be right when one examines the substance of this part of the report in which he seeks to provide reasons why the defects pleaded in para.13 of the statement of claim and reply no.1 to the request for further and better particulars of the statement of claim are in breach of the Regulations and do not comply with Schedule 5 of the Agreement or fail to measure up to what one might expect of a luxury development such as this.  It also contains his opinion as to the cost of remedial works.  This is all pleaded and the contents are therefore relevant.

42.  I will allow all of this report to be relied on.  The Defendant will be able to put in expert opinion in reply within 28 days.  Again, the costs of and occasioned by this summons will be to the Defendant to be taxed if not agreed on an indemnity basis and to be paid forthwith.  This also will be an order nisi.  I am making a costs order in this form because it seems to me entirely wrong that this sort of substantial evidence should come so late.  It marks the court’s disapproval and compensates the Defendant who will now have to busy itself responding to it late in the day.