LIU CHUNG FAI AND ANOTHER v. TIN SHUI WAI DEVELOPMENT LTD AND ANOTHER

HCA 4610/2003

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 4610 OF 2003

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R U L I N G

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1.  The 1^st defendants (“TSW”) apply by summons dated 25 August 2005 to strike out the plaintiffs’ Amended Statement of Claim and to have the action dismissed, and to strike out the plaintiffs’ Reply to the Defence and  Counterclaim, and for judgment on their counterclaim.

2.  The plaintiffs apply by summons dated 24 April 2006 for leave to re-amend their Amended Statement of Claim, and then, by a further summons dated 26 May 2006, to replace the draft Re-Amended Statement of Claim with a new one, adding further amendments to those sought in the earlier summons. 

Background

3.  This action is one of a number of High Court actions spawned by TSW’s housing development known as Maywood Court, Kingswood Villa, Tin Shui Wai.  The actions are between purchasers, who entered into sale and purchase agreements following a standard form for uncompleted units in the eight housing blocks there, TSW as the vendor, and the solicitors who acted for both vendor and purchaser in the transactions.  The agreements did not proceed to completion, and litigation ensued. 

4.  In some cases,  such as the instant one, the purchasers claim against TSW for breach of contract, and claim against the solicitors, who acted for both vendor and purchaser in the transactions, for professional negligence.  In this case the solicitors were Baker and Mackenzie (“BM”) and in others Stikeman Elliott & Co. (“SE”).  In other cases, TSW sued the purchasers, who issued third party proceedings against the solicitors. 

5.  The summonses came before me for hearing on 1 June 2006.  Earlier, I heard applications, in this case by BM, and in another similar case by SE, for the determination of a preliminary issue relating to the solicitors’ liability and for stay of another 27 actions pending the determination of that issue.  It was agreed at the earlier hearing that I should defer decision of those applications pending the hearing of the summonses in this case for striking out and amendment.  My two sets of reasons for decision should therefore be read together.

6.  The Agreement in this case is dated 8 October 1997.  It is a standard form agreement for the pre-sale of a residential unit in “the Development”.  Its terms follow the standard form under the Consent Scheme, which was jointly established by the Government and the Law Society for the sale of units in uncompleted residential buildings.  The  “Development” is defined as being the residential units and carparking spaces being constructed in accordance with the building plans and intended to be known as the eight blocks of Maywood Court of Kingswood Villas.  The definition is set out in full in my reasons for decision on the preliminary issue.

7.  Clause 4(1)(c) of the Agreement obliged TSW to complete the Development in accordance with the conditions of the Government Grant and the building plans by 31 December 1997, subject to extensions which might be granted by the Authorised Person.  If TSW failed to do so, by Clause 4(4)(a) the plaintiffs had the right to rescind the Agreement, within 28 days of the due date (TSW also being obliged, elsewhere in the Agreement to give notice of any extension).  

8.  Clause 4(4)(b) provided that if the plaintiffs did not rescind within 28 days from the due date, they were to be deemed, without prejudice to their rights under sub-clause (4)(c) to have elected to wait for completion of the Development.

9.  Clause 4(4)(c) further provided that if TSW were to fail to complete the Development within 6 months of 31 December 1997, the purchasers again had an option to rescind, or to wait for completion of the Development.

10.  By Clause 5, completion of the sale and purchase was to take place within 1 month of the issue of the Certificate of Compliance or the consent of the Director of Lands to assign, whichever should first happen.  By Clause 4(7) the issue of such Consent to Assign was to be conclusive evidence that the Development had been completed or was deemed to be completed. 

11.  On 22 December 1997, the Authorised Person issued a certificate that the Development had been completed in all respects in compliance with the Government grant and the building plans.  On the same date the Building Authority issued the Occupation Permit.  The following day TSW’s solicitors applied for the Consent to Assign. 

12.  The plaintiffs did not exercise their option to rescind within 28 days of 31 December 1997, and therefore were deemed to have elected to wait for completion of the Development at least until 30 June 1998, when the next option arose. 

13.  On 4 June 1998, TSW gave an undertaking to Government in respect of the completion of minor external finishing works, minor landscaping works and minor internal finishing works at the common area of the Lot, and provided a bank bond in support. 

14.  On 17 June 1998, the Director of Lands gave his Consent to Assign.  TSW on 3 July 1998, through its solicitors, called on the plaintiffs to complete the purchase.  But this did not happen.  A final notice was given on 1 August 1998 by BM.  No completion ensued and TSW, through BM, on 30 September 1998 gave notice of determination to the plaintiffs, pursuant to Clause 16(1) of the Agreement.

15.  It is common knowledge, and the plaintiffs plead, the property market in Hong Kong had suffered a severe downturn by July 1998.  In fact, as is well known, it went down before that.  The property was probably worth a lot less, by December 1997, than the contract price. 

The claims

16.  By the Amended Statement of Claim, the plaintiffs claim a declaration that TSW had been in repudiatory breach of the Agreement by failing to complete the Development by 31 December 1997; a declaration that the Agreement had been validly terminated by the plaintiffs pursuant to clause 4(4)(a) or that they had accepted TSW’s repudiation; and return of the deposits paid, of $1,347,300.

17.  TSW denies liability.  It pleads that it re-sold the unit within 6 months of the determination of the Agreement, at a shortfall of $2,446,000.  Giving credit for deposits paid, which it pleads it is entitled to forfeit, TSW counterclaims for a further $1,138,872.50 by way of liquidated damages under the Agreement, plus contractual interest, alternatively damages amounting to $1,143,791.50.

TSW’s case for striking out

18.  The basic case may be put quite simply.  No matter what the state of completion of the Development at 31 December 1997, the parties had agreed that the Development was deemed to have been completed once the Consent to Assign was issued.  They contracted on the basis that completion of the sale and purchase would take place on the grant of the Certificate of Compliance or the Consent to Assign, whichever came sooner.  The plaintiffs were called upon to complete, after the issue of the Consent to Assign, and they did not, so they have no claim and no defence to the counterclaim.

Principles of striking out

19.  The discretion is to be exercised only in plain and obvious cases.  The claim (or defence) must be obviously unsustainable, the pleading unarguably bad, and it must be impossible, not improbable for the claim (or defence) to succeed before it may be struck out; see the Hong Kong Civil Procedure 2006, Para. 18/19/4.  The court should not refuse to strike out on the grounds that the issues are difficult or complicated if it comes to the conclusion after full argument in the face of all the relevant information that the case is plainly and obviously one for striking out; Byjoy Limited v Thorogood Estates Limited [1985] 2 HKC.

The plaintiffs’ case against TSW

20.  It is necessary to set out the plaintiffs’ case, as it appears in the draft Re-Amended Statement of Claim, because if the original pleadings are bad, but can be cured by amendment, they should not be struck out but the amendments should be allowed.

21.  The plaintiffs plead:

(1)     Misrepresentation

(2)     Breach of implied term

(3)     Repudiatory breach of clause 10(e)

(4)     Failure to prove good title

(5)     Defective notice to complete

(6)     Substantial delay between the application for the Consent to Assign and its actual issue

(7)     It is inequitable for TSW to rely on the deeming provision or purport to terminate the Agreement because of the misrepresentation (Prevention Principle)

Implied Term

22.  Implied term and misrepresentation go together.  The pleadings relating to the implied term were complicated to start with.  As they appear in the draft, they are appreciably worse.  It is necessary to set them out verbatim here : 

21. It is an implied term of the Agreement, as a matter of obvious inference or obvious intention of the parties, or to give business efficacy, or as a matter of law applied to the terms of the Agreement or as a matter of construction, that the 1^st Defendant should not make any misrepresentation (whether innocently, carelessly, recklessly, or knowingly) to the Plaintiffs on matters concerning the time of completion of construction of the Development, or the progress of construction, or extension of the time of completion of construction beyond 31st December 1997 by the authorized person, and that if the 1st Defendant misrepresented (whether  innocently, carelessly, recklessly, or knowingly) to the Plaintiffs on matters concerning the time of completion of construction of the Development, or the progress of construction, or extension of the time of completion of construction beyond 31st December 1997 by the authorized person, reasonably relied on by the Plaintiffs due to the inequality of access to the relevant information, thereby prejudicing the Plaintiffs’ timely exercise of their right to rescind under clause 4(4)(a) of the Agreement or to accept repudiation of the 1st Defendant under common law for failure by the 1st Defendant to complete construction by 31st December 1997, then the time limit of 28 days  counting from 31st December 1997 under clause 4(4)(b) deeming the Plaintiffs to have elected to wait for completion should be extended to 28 days from the time when the Plaintiffs found out, or could reasonably be expected to find out, the true position and disabused themselves of the misrepresentation from the 1st Defendant.  Alternatively, the aforesaid term should be implied but with the words” misrepresented (whether innocently, carelessly, recklessly, or knowingly)” substituted by the words “misrepresented (whether carelessly, recklessly, or knowingly)”.  Alternatively, the aforesaid term should be implied but with the words “ misrepresented (whether innocently, carelessly, recklessly, or knowingly)” substituted by the words “misrepresented (without reasonable grounds)”.

21A. It is an implied term that when enquired by the Plaintiffs as to matters involving or relevant to the progress of construction of the Development, the 1st Defendant should answer within a reasonable time according to the best of its knowledge, and with reasonable care, and that if the Plaintiffs were prejudiced (by any breach by the 1st Defendant of such obligation) in exercising their rights to rescind under clause 4(4)(a) of the Agreement then the time limit of 28 days counting from 31^st December 1997 under clause 4(4)(b) should be extended to 28 days from the time when the Plaintiffs found out or could reasonably be expected to find out the true position and disabused themselves of the prejudice from such breach.

2IB. It is an implied term that when enquired by the Plaintiffs as to matters involving or relevant to the progress of construction of the Development, the 1st Defendant should answer in accordance to the best of its knowledge, and with reasonable care, and that if the Plaintiffs were prejudiced (by any breach by the 1st Defendant of such obligation) in exercising their rights to rescind under clause 4(4)(a) of the Agreement then the 1st Defendant should only be allowed to rely on clause 4(4)(b) with such extension of time for rescission under clause 4(4)(a) as is equitable in all the circumstances, having regard to, and to redress, the prejudice and the breach.

21C. The aforesaid implied terms, pleaded herein further or in the alternative, should be implied as a matter of obvious inference or obvious intention of the parties or to give business efficacy, or as a matter of law applied to the terms of the Agreement, or as a matter of construction.

21D. In further support of the contention for the implied terms as averred in paragraphs 21, 21A and 21B it is averred that completion of construction of the Development or the progress thereof is a matter peculiarly within the knowledge of the 1^st Defendant (and its agents, including the Authorized Person architects, and building contractors), and that in order that the Plaintiffs might consider whether to exercise their rights of rescission given by clause 4 of the Agreement and in order to give content, meaning and efficacy to those rights, the implication of the said term is necessary, or goes without saying

22. The aforesaid implied terms (any one or more of them as appropriate) are hereinafter referred to as “the Implied Term”

23.  A summary of the law relating to implied terms was given by Lord Simon in BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1978) 52 ALJR 20 at p.26E :

“Their Lordships do not think it necessary to review exhaustively the authorities on the implication of a term in a contract which the parties have not thought fit to express.  In their view, for a term tobe implied, the following conditions (which may overlap) must be satisfied: (1) it must be reasonable and equitable; (2) it must be necessary to give business efficacy to the contract, so that no term will be implied if the contract is effective without it; (3) it must be so obvious that “it goes without saying”; (4) it must be capable of clear expression; (5) it must not contradict any express term of the contract.”

24.  It is difficult to understand exactly the meaning of the implied term contended for.  If it is capable of clear expression, it has not been clearly expressed in the pleadings.  One may find some assistance in paragraph 29, where the plaintiffs set out what they consider that the agent should have done, and what would have happened if he had done it :

“If the 1^st defendant had performed its obligation to answer enquiries to the best of its knowledge and with due care as aforesaid, and had not misrepresented or had informed the plaintiffs with due care that the Development had not been completed and could not reasonably be expected to be completed by 31 December 1997 and that there was no extension by the authorised person, the plaintiffs would have sought legal advice …”.

25.  This suggests that what is meant is that if the purchasers ask about the time of completion of construction of the Development, or the progress of construction, or extension of the time of completion of construction beyond 31st December 1997 by the authorized person, and the Development is not going to be completed by 31 December 1997 or some later date fixed by the authorised person, the vendor must tell them so.  But that only appears to the situation in paragraphs 21A and 21B, were questions are asked and answered.  Paragraph 21 seems to be a blanket implied term as to what is to happen if the vendor misrepresents the state of completion of the development to the purchaser.

26.  If this is what is meant, well and good, but I am not sure that it is; and nor, it appears, are the plaintiffs, although Mr Chan says that several formulations are pleaded, not because of objective uncertainty in what is to be implied, but in case counsel gets it wrong.  The argument seems to be that this Agreement, and indeed every contract comes with a hidden portfolio of implied terms, which must be gone through at trial, to see if any will fit.  As I understand it, reference is made to Trollope and Colls v NW Metropolitan Regional Hospital Board [1973] 1 WLR 601 as authority for the proposition that it is only after arguments and consideration, when the court finds it cannot identify one of several possibilities put forward as the correct term to be implied, that the court should hold that there is no implied term. 

27.  A somewhat similar situation came before HH Judge Chan in Tin Shui Wai Development v Yiu Sun Hung & Anor,DCCJ 569 of 2003.  In that case it was pleaded that the purchaser had made enquiries as to when he would get possession, and that he had been told that variously that “his unit would soon be ready” or “it was ready, and he should await further notice”.  A similar implied term was contended for.  It was rejected on the grounds that the term was not necessary, or might only become necessary at a stage when the development was about to be completed, because before that the state of completion would be obvious, and was therefore difficult to formulate; and also because the number of possible formulations implied in the term as pleaded rendered it impossible to be clearly expressed or clear and obvious.  The judge seems to have accepted, in dealing with an application for leave to appeal, that there might be something in the purchasers’ attack on his judgment on imprecision, because he said that if there were four ways to express the implied term, they could all be pleaded and it was a matter for the trial judge to decide at the end of the trial on whether one or more of them, or none of them, should be implied.  This decision is also relied on in the argument that consideration of all the possible formulations should be left for trial.

28.  I cannot see any authority in Trollope for the proposition that the arguments and consideration of all the possible implied terms must be reserved for a full trial.  It seems to me that if the implied terms cannot be expressed clearly and in such a way as to show that they or one of them is plain and obvious, the plaintiff cannot expect to go to trial and see which one of them, if any, the evidence fits.  In that case at page 609C Lord Pearson explained :

“An unexpressed term can be implied if and only if the court finds that the parties must have intended that term to form part of their contract; it is not enough for the court to find that such a term would have been adopted by the parties as reasonable men if it had been suggested to them: it must have been a term that went without saying, a term necessary to give business efficacy to the contract, a term which though tacit, formed part of the contract which the parties made for themselves.”

29.  In fact the implied terms contended for seem to have undergone a kind of development, as various purchasers have brought cases against TSW, or have had to defend cases brought against them.  Their lawyers are casting around for a formula that will work, and TSW’s lawyers are casting around for ways to block them.  See, in particular, Yau Chin Kwan and Yuen Suk Kuen v Tin Shui Wai Development Ltd, HCA 11520 of 1999 and [2003] 2 HKLRD 1 (C.A.), Yiu Sun Hung, and Tin Shui Wai Development Ltd v Cheng Hoi Chu, HCA 3595 of 2003.  In all these cases, incidentally, the court did not accept that the implied terms contended for were necessary.

30.  It seems to me that the implied term pleaded in paragraph 21 is unnecessary.  It assumes that the vendor is in some way likely to misrepresent the state of completion of the Development, otherwise it would not be necessary to provide for that.  But the same argument applies, as was raised in Yau Chin Kwan and Yiu Sun Hung; when is such a provision necessary? There is no point in representing that the Development is completed when anyone can see it is half built.  The problem may only arise when it is near completion.  Even then, what does completion mean? It was accepted in Yau Chin Kwan (on appeal) that this might be a matter for judgment.  The requirements of necessity and clarity are intertwined and the implied term fails on both.

31.  Then there is the requirement that the term be obvious.  The question is whether, if the mythical “officious bystander” had asked the parties if they intended to provide for an extension of time for rescission, if the vendor misrepresents (however remotely or obliquely) the state of completion to the purchaser; would they answer “of course”? I doubt that they would.  All kinds of questions would then come up; such as why, and when, such misrepresentation might come in.  Nothing is obvious; the parties, if they had thought about this situation, or someone had thought about it for them, would no doubt have had to canvass all the possibilities before reaching a decision on it.

32.  As to the terms pleaded in Paragraphs 21A and 21B, it is not difficult to see that the vendor might be required to answer, if enquiries were made, in reasonable time, to the best of its knowledge and so on.  It seems that, if the purchaser makes inquiries as to the completion of the Development, the vendor must answer them.  See Yau Chin Kwan and Yuen Suk Kuen v Tin Shui Wai Development Ltd, HCA 11520 of 1999 and [2003] 2 HKLRD 1 (C.A.).  In that case, it was decided, and upheld on appeal, that the agreement was perfectly workable without implied terms requiring TSW to inform the purchasers of the state of completion within 28 days from 31 December 1997, and provide timely information on progress, to enable them to exercise their right of rescission, particularly in the light of another term pleaded, that if enquiries were made TSW should answer them.  In that case, in fact, no enquiries were made.  TSW did not seek to dispute the fact that it would be required to answer questions which might be posed by or on behalf of the plaintiffs.  The implied term pleaded, but not disputed, was that the vendor was obliged :

“to answer the plaintiffs’ questions or requisitions concerning whether the Development had in fact been completed in accordance with cl. 4(1)(c) on or before 31 December 1997.”

33.  This seems reasonable enough as far as it goes, given that only TSW would know when the Development had been completed in accordance with Cl. 4(1)(c).  In this case, say the plaintiffs, enquiries were made and it was for TSW or its agent to answer them and answer them within a reasonable time, to the best of its knowledge and so on; and this is not difficult to accept subject to the problem mentioned below, that what is completion of the Development is a matter of judgment.

34.  Here, however, there arises a problem which is even more fundamental.  The enquiries made did not ask the right questions.  It is pleaded that that the plaintiffs enquired “about when the property would be delivered to them for their use”.  This is by no means the same thing as when the Development had been completed in accordance with Cl. 4(1)(c).  In fact the plaintiffs also aver, at paragraph 8A, that they entered into the Agreement in reliance on a sales brochure which gave various estimated dates.  Those referred to include the estimated date for occupation, i.e. 15 May 1998.  This is what the plaintiffs were asking about.

35.  Now, whatever the “completion of the Development” may mean (and in Yau Chin Kwan, Rogers JA accepted that this might be a matter of judgment), there is nothing beyond Mr Chan’s “domino effect” of delay to say that delay in completion of the Development must mean delay in completion of the purchase.  It may well do so but time can be made up.  But in any event, what interested the plaintiffs then was, according to the pleadings, the date of completion of the purchase.  It seems to me impossible to infer that, if the plaintiff asks about the date of completion of the sale and purchase, the vendor must be under a contractual duty to tell him about something else entirely, which may or may not produce a delay beyond the estimated (but not binding) date given.  To say that the vendor must do this is in effect to put on it the duties to inform which were rejected as implied in Yau Chin Kwan.

36.  Finally, there is the requirement that the implied terms should not contradict any express term.  TSW argues that they contradict clauses 4(4)(b), 5 and 16.  I think this is questionable, because if there was a requirement to answer enquiries and this was not complied with, it would follow that notice under clause 4(4)(b) would not be given.

37.  Overall, however, it seems to me that the implied terms contended for must necessarily fail, because they are not necessary in the sense that the Agreement would not work without them, they are not obvious, and they are not capable of clear expression.  Insofar as the terms as to answering enquiries made may be implied, they do not assist, because on the pleadings, the wrong questions were asked.

Misrepresentations

38.  As to the misrepresentations, it is pleaded, as I have indicated above, that the plaintiffs enquired from “in about December 1997 to 28 days after 31 December 1997” a number of times of TSW’s staff or agent “about when the property would be delivered to them for their use”.  In answer, two misrepresentations were made to them, as follows:

“… to the effect that the completion deadline could have been postponed because of typhoon or raining, and that possession of the Property would soon be ready for delivery to them and asked them to wait for further notice, thereby representing that the construction would be completed soon or already completed in compliance with clause 4(1)(c) of the Agreement, and that there could have been extension of the time of completion of construction granted due to typhoon or raining.”

39.  The plaintiffs go on to say that in fact there was never any extension, and TSW failed to complete the Development by 31 January 1997.  Substantial work then remained outstanding and still remained outstanding by 4 June 1998 so that there was no reasonable prospect that the Development would be completed in accordance with clause 4(1)(c), or even soon.

40.  They say further that TSW or its servants or agents knew, or ought to have known, if exercising due care, of this state of affairs.  So they made the representations recklessly or carelessly.  Insofar as the representations were opinion only, which is denied, the servants or agents did not believe their opinions, or were reckless or careless in giving them.  They were further reckless or careless because they could easily have found out the true position.

41.  In fact, it appears from the 2^nd plaintiff’s affirmation that the servant or agent concerned was one Frankie Mak of Kingswood Property Services Ltd.  This company is part of the Cheung Kong group as is TSW.  This is covered by voluntary particulars filed on 29 May 2006, which also expand the averments as to falsity, recklessness, carelessness, lack of knowledge and so on.  I take it for the purposes of these applications that the averments as to the representations made are factually correct.

42.  However, it has to be noted that in these voluntary particulars, the plaintiffs aver that TSW’s management directed the representing agent to make the representations when answering similar inquiries, and knew the representations were to be made by the agent when answering enquiries.  If the representations were opinions, neither the management or the agent believed them.  If they were opinions, they impliedly represented as fact that the management and the agent knew of facts which justified the opinions, and such implied representations were and are false to the knowledge of the management and the agent.  Further, it was impliedly represented that the management or the agent had reasonable grounds for the opinions; and the opinions were false, and known to be false, because the management and the agent had no reasonable grounds for them and could have checked the relevant facts.  There are also expanded particulars as to recklessness, carelessness and failure to take reasonable care to find out the relevant facts.

43.  These voluntary particulars bring in last minute averments of fraud.  In averring knowledge, they go further than the earlier pleadings of recklessness.  Mr Yu SC, for TSW, says that they also should be struck out, because there is no basis in fact for them.  He also complains that they are pleaded in contravention of Article 113 of the Barristers’ Code of Conduct which requires that counsel not plead fraud unless he has clear instructions and reasonably credible material.  Mr Yu says that the voluntary particulars should also be struck out.

44.  A misrepresentation is actionable only if it is a statement of fact.  A statement of opinion is not a misrepresentation; see Chitty on Contracts, 29^th Ed,Para. 6 – 004.  There is an exception where it can be established that the person who expressed the opinion did not hold it, or could not honestly have held it, in which case it may be regarded as a statement of fact; Chitty 6 – 005, 6 – 006.

45.  The major problem with the alleged misrepresentations is that they are mere conjectures or expressions of opinion.  The plaintiffs have argued at length on the circumstances in which an opinion may be taken as implying a state of facts different from the truth, and say that by representing that “the property would soon be ready” or that “there could have been an extension” the agent was implying, as a fact, that construction was not behind schedule, and in particular that there was no breach of clause 4(1)(c); and further that the agent could not honestly have held these opinions.

46.  In my view this simply does not follow.  “It will be ready soon” is the usual formula that members of the public have come to expect from the agents of the “customer service departments” of large corporations.  It does not mean anything.  Any reasonable person knows that.  Indeed, “soon”, in January when what the purchasers have been led to expect is completion in May, is particularly meaningless; May is not “soon” when seen from January.  This statement is obviously nonsense, and quite worthless to the purchaser, but equally, no specific fact can be implied from it.  In particular, it is impossible to infer that, as a matter of fact, a deadline which has to be reached some time before completion of the purchase (on the brochure estimates) has not been met.

47.  As to the representation that there could have been a postponement because of typhoon or rain, it cannot be implied from this that the Development had been completed.  Rather it seems to suggest a reason for, and therefore the fact that, the Development had not been completed.  So if the plaintiffs had known (which they say they did not) about the 31 December deadline, this should have prompted them to seek to rescind, if that was what they wanted.

48.  Of course the plaintiffs say, in affirmation, that they did not know of their right to rescind.  But they should have known.  It is said that they were not given a copy of the Agreement; but they were legally represented.  They could find out.  If they did find out, they would find out also that TSW was obliged to give notice of any authorised postponement within 14 days.

49.  This is, incidentally, also relevant to the question of reliance.  The plaintiffs say that they acted on the faith and truth of the representations.  But if the plaintiffs did not know of their rights until June, which is what the 2^nd plaintiff says, it is difficult to see that they can rely on something said in January as having caused them not to exercise their rights.  In any event, it appears that the plaintiffs had a pretty good idea that the building was, in layman’s terms, not finished.  Again, if that was what they knew it was surely up to them to ask their lawyer about their rights.

50.  As to whether it can be established that the person who expressed the opinion did not hold it, or could not honestly have held it, there really seems to be no more than conjecture.  It is necessary to remember that fraud must be pleaded with the utmost particularity.  See Aktieselskabet Dansk Skibsfinansiering v Wheelock Marden & Co. Ltd [1994] 2 HKC 264 at 270.

51.  What we have here appears to be a totally unfounded allegation that Frankie Mak knew that there had not been any extension, and had been told to say that there could have been one.  It seems to me that it does not follow, from the fact that the opinions were expressed, that the agent could not honestly have held them.  It is true that he worked for a company owned by Cheung Kong, but nothing is pleaded to show that he or his employer would necessarily have known the state of completion of the Development, especially having regard to fact that this was itself a matter of judgment.  It depends what he was told, and no one knows what, if anything, he was told.  A fortiori there is nothing on which to base the averments in the voluntary particulars of actual knowledge or conspiracy.  And one cannot simply plead fraud with no basis, and expect to be allowed to go ahead with the proceedings, in the hope that fishing on discovery will produce some kind of basis.

52.  It seems to me that the pleadings of misrepresentation are inarguably bad.

Repudiatory breach of Clause 10(e)

53.  By this sub-clause TSW warrants that it will, on completion of the Development, provide the communal and recreation facilities set out in Schedule 6.  These are playgrounds, basketball and tennis courts and a swimming pool, and the use of facilities of residents’ clubs.

54.  A breach of warranty generally gives a right to damages, but not a right to treat a contract as repudiated.  Even if Clause 10(e) were to be construed as an intermediate term, a breach will only entitle the innocent party to rescind if it deprives him of substantially the whole benefit of the contract; see Hong Kong Fir Shipping Co. Ltd v Kawasaki Kisen Kaisha Ltd [1962] 2 QB 26.  That obviously does not apply here.  Having the playgrounds and the like completed at the time of completion of the Development or even completion of the sale and purchase is not the whole benefit.

55.  TSW argues that if this was a repudiatory breach, there must be an unequivocal acceptance of it.  The plaintiffs never showed any unequivocal intention to accept the repudiation and terminate on that ground.  The plaintiffs plead that they accepted the repudiation by their solicitor’s letter of 20 January 2000, or by the Writ and Statement of Claim, or simply by not completing the purchase when called on to do so. 

56.  The plaintiffs rely on Vitol SA v Norelf Ltd [1996] AC 800 in which it was held that acceptance of repudiation required no particular form provided the aggrieved party clearly and une1uivocally demonstrated that he was treating the contract as determined; notification was not necessary if the acceptance came to the repudiating party’s attention, and a failure to perform was capable of signifying an election to accept repudiation.  The argument seems to be that whether the facilities were completed is a question of fact and TSW cannot rely on the deeming provision in clause 4(7) to prove that they were completed, because this only applies to the Development.  If the facilities were not completed, TSW knew, or must have known, that it had committed a repudiatory breach, and would therefore know that the plaintiffs, in failing to complete when called on, were repudiating (inter alia) because of this breach. 

57.  Mr Yu argues that this is unreal.  He relies on dicta of Lord Steyn in Vitol SA, followed by Keith JA in Kar Ho Development v Axis Investment Ltd[2001] 1 HKC 86 on the need for an unequivocal indication of acceptance.  I agree.  In the circumstances of the economic downturn, which is what in fact caused the plaintiffs not to complete, TSW could not have been expected to conclude that the plaintiffs were not completing because the facilities were not finished. The reason could as easily have been lack of funds or inability to obtain finance. He also argues that if there was an acceptance in correspondence or the Writ and Statement of Claim, that came too late; and this is obviously right also. 

Failure to show and prove good title

58.  The plaintiffs plead that TSW failed to show a good title by failing to answer a letter dated 15 June 1998 asking whether any extension of time had been granted by the Authorised Person.  The solicitors stated that if they received no reply in 2 days, they would presume that none had.  This was answered by BM’s letter of 15 June 1998, enclosing copies of the occupation permit, architect’s certificate and the solicitor’s letter applying for consent to assign.  The plaintiffs’ then solicitors took the matter no further and there was no unequivocal rescission, or acceptance of repudiation.

59.  The plaintiffs also now seek to plead that on a proper construction of the Agreement, in particular Clauses 2 and 12, TSW had to sell the Property with legal title.  It sought to sell only on the issue of the Consent to Assign, and not the Certificate of Compliance, issued on 23 April 1999 which would have completed its own legal title; so it had no legal title to convey.  By calling on the plaintiffs to complete, it committed a repudiatory breach, which the plaintiffs accepted by not completing. 

60.  Mr Chan argues that very clear words are needed to say that a sale and purchase is to be completed without conveyance of the legal title.  The plaintiffs would not be able to sell on.  Even though TSW was obliged to issue notice to complete once it had the Consent to Assign, it should not have applied for that, unless it was confident of obtaining the Certificate of Completion in time.

61.  Now if TSW was obliged by the Agreement to convey a legal title, it may be, as the plaintiffs say, that they would have been entitled to treat the contract as repudiated on discovering that TSW had no title, and need not wait for the completion date; see Pips (Leisure Productions) Ltd v Walton (1980) 20 EG 601.  But the plaintiffs were legally represented and they did not rescind on that ground.

62.  This question of legal as against equitable title, under the Consent Scheme, was considered recently by Deputy High Court Judge Saunders in Pang Moon Kee & Ors v Concord Property Development Ltd, HCCT 127 of 1998 (13 January 2006), and then by Mr Recorder Edward Chan SC, in Tin Shui Wai Development Ltd v Polykin Ltd, HCA 561 of 2001 (9 May 2006).  In both cases there was an application to strike out pleadings.  The learned Deputy Judge was “not at all confident” that the purchasers’ argument would succeed, but found that there was an arguable defence on whether the vendor before him could require the purchasers to accept only an equitable title and so, “somewhat reluctantly”, found himself obliged to grant leave to defend.  The learned Recorder, having considered the authorities, including the earlier case, struck out the pleadings in the case before him.

63.  Reference was made, in those cases, to a circular of the Legal Advisory and Conveyancing Office of the Department of Lands, dated 21 May 1999, containing the following paragraph :

“2. Pursuant to a Consent to Assign, a vendor can convey an equitable interest and not a legal estate.  Although the approved form of Agreement does not stipulate that there be an assignment of a legal estate upon completion, with a view to avoiding the possibility of argument that the vendor must convey a legal estate on completion, a new subclause 12(2) has been added to the approved form of Agreement as per the attached.”

The attachment records :

“Clause 12(2)   The Purchaser shall raise no objection if the Vendor’s interest in the Property is an equitable interest and not a legal estate.”

64.  The learned Recorder considered that it was not necessary for him to decide the point, which was not raised in the Defence before him, but then went to some length to consider the point, in case he was wrong.  See paragraph 41 of the judgment.  In brief, as I understand him, he took the view that although when an agreement is silent on the point, prima facie the vendor is obliged to show and assign a legal title, it was well within the contemplation of the parties that when the Government gave consent to assign, the legal title may not have been vested in the vendor.  Yet the requirement of notification to complete, once consent to assign had been issued, was mandatory.  Even though the purchaser was only to acquire an equitable interest, his enjoyment of the property would not be adversely affected, because once the certificate of compliance was issued, the legal title would vest in the developer and by the doctrine of feeding of title, the purchaser, having completed the purchase, would get a legal estate.  In any event, no objection had been taken that the title was merely equitable and if it had been, the vendor would have been able to assign a legal title by procuring the Government to join as a party to the assignment. 

65.  I respectfully agree with the learned Recorder’s reasoning.  It seems to me that there is no reasonable doubt that plaintiffs would have had conveyed to them a title which was good against the vendor and the whole world.

66.  I have heard full argument in the face of all the relevant information, and am in a position, following Byjoy, above, to say that this part of the plaintiffs’ case is plainly and obviously for striking out.

Defective notice to complete

67.  It is pleaded that the notice to complete was bad, because TSW in its solicitors’ letter of 14 June 1998 contended that the Development was deemed to be completed, which was wrong because the Consent to Assign was not yet issued, and because no credit was given for interest payable due to delay in completion pursuant to clause 4(4)(b). 

68.  I do not remember, or find in my notes, any specific oral argument on this point though it is covered in Mr Yu’s skeleton argument.  In any event, I cannot see what there is in this point.  The notice to complete came on 3 July, after the issue of the Consent to Assign on 17 June 1998.  How an earlier letter can vitiate that I do not understand.  As to the interest, the fact that it was not credited is irrelevant.  That was something to be worked out between solicitors, before the cheques changed hands on completion.

Substantial delay

69.  It is pleaded that it was not contemplated within the Consent Scheme or the Agreement that there should be a substantial delay in excess of five months between application for and issue of the Consent to Assign.  During the delay period, the property market went down.  In the circumstances it is unfair and inequitable for TSW to insist on completion.

70.  Again, I find no note of oral argument on this point, but I cannot see the basis for it.  There does not seem to be any specification either in the Consent Scheme or the Agreement of how long it should take between the application for and the issue of the Consent to Assign.  It is true that TSW indicated an estimated date for completion of the sale and purchase at 15 May 1998 and the Consent to Assign was issued on 17 June 1998, so that the sale and purchase should be completed by 17 July 1998.  There was a 2-month delay on an estimate.  I do not see what is inequitable about that.

71.  In any event, there is no pleading as to when the downturn came.  It is not specified when the Consent to Assign should have been issued, or that the downturn came between then and the date when it was issued.  Only if the downturn came after the date when the Consent should have been issued would the question arise.  In any event, it is difficult to see how equity assists.  If the value dropped between contract and completion, that is the risk a purchaser takes.

Prevention Principle

72.  The plaintiffs seek to plead that because of the alleged misrepresentation, TSW cannot, or it is inequitable for it to rely on the deeming provision or to purport to terminate the Agreement without first correcting the misrepresentation and giving the plaintiffs a further 28 days to consider whether to exercise the right to rescind.  The plaintiffs rely on the “prevention principle” referred to in Kensland Realty Ltd v Whale View Investment Ltd & Anor, [2002] 1 HKLRD 87, that a party to an agreement cannot rely on his own breach to avoid the contract, or bring it to an end or to obtain a benefit under it.  It is argued that if there was misrepresentation, but no breach of implied term, the principle could still apply in the case of breach of a non-contractual duty; Cheall v Association of Professional, Executive and Computer Staff [1983] 2 AC 180. 

73.  The plaintiffs’ argument is that it is inequitable if, having given the plaintiffs the right to rescind in 28 days for delay beyond 31 December 1997, the plaintiffs should have no remedy when an agent of 1^st defendant did not carefully or properly answer their enquiries on progress and so prejudiced them from exercising their right.

74.  This is all very well, but I do not see that there was misrepresentation, for the reasons given above; nor that the representations made could have caused the plaintiffs to miss the deadline for rescission.  The plaintiffs cannot rely on the prevention principle unless they have a wrong to rely on, in the first place.

Result

75.  I find that the plaintiffs were called upon to complete, after the issue of the Consent to Assign, and they did not, so they have no claim and no defence to the counterclaim.  The plaintiffs’ pleadings are unarguably bad, and disclose no reasonable cause of action, and the amended pleadings do not cure them, so they must be struck out and the applications to amend dismissed.

76.  There will be an order in terms of the 1^st defendant’s summons dated 28 August 2005.  The plaintiffs’ summonses dated 24 April and 26 May 2006 are dismissed.  The voluntary particulars are to be struck out also.

77.  As to those amendments which relate to the 2^nd defendants, BM, the latter has no objection to them and they are allowed.

78.  The costs of the 1^st defendant’s summons be to the 1^st defendant to be taxed if not agreed.  The costs of the plaintiffs’ applications to amend against the 1^st defendant be also to the 1^st defendant to be taxed if not agreed.  The costs of and incidental to the plaintiffs’ amendments against the 2^nd defendants will be to the 2^nd defendants, in any event.  The plaintiffs’ own costs are to be taxed in accordance with the Legal Aid Regulations. 

79.  Since this ruling is to be handed down, all the costs orders are nisi.  When I heard the application for trial of the preliminary issue, and the related applications for stay, it was agreed that consideration of costs be reserved for the directions hearing which would necessarily follow on my ruling.  If there is to be further argument on costs in respect of the summonses to strike out and amend, that should be heard at the same directions hearing.