PEARL BLUE INVESTMENT LTD v. FIE CO LTD

DCCJ 4934/2019

[2021] HKDC 1266

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 4934 OF 2019

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JUDGMENT

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1.  This is a claim by the plaintiff against the defendant for a sum of HK$623,100 pursuant to an agreement dated 7 April 2017 (the “Agreement”) concerning rectification works done in various areas on the 27^th Floor of Technology Plaza, No.651 King’s Road, North Point, Hong Kong (“Technology Plaza”).

Background

2.  The defendant was the previous owner of all the 5 workshop units on the 27^th Floor of Technology Plaza. The defendant also has a license agreement to use certain part of the common areas of the same floor.

3.  The Deed of Mutual Covenant and Management Agreement of Technology Plaza is dated 30 November 1995 and registered by Memorial No. 6475214 (Trial Bundle B1 page 2-75). It stated, amongst others, under the Fourth Schedule:

“2. No owner shall make any alteration to any installation or fixture of any part of the Building which will affect…the supply of water, electricity…

7. No part of the Common Areas and Facilities…shall be obstructed…

8. No owner shall cut…alter…interfere with…any part of the Common Areas and Facilities…”

4.  On 8 November 2016, by way of a Provisional Agreement for Sales and Purchase, the plaintiff agreed to purchase all 5 workshops from the defendant for the sum of HK$34,400,000.

5.  On 22 November 2016, the manager of Technology Plaza, Kai Shing Management Services Limited (“Kai Shing”) wrote to the plaintiff’s solicitors (“Kai Shing’s Letter”, Trial Bundle B2 page 444-445) stating that the defendant had created various unauthorised additions, demolitions and alterations to the common areas and facilities of the 27^th Floor (the “Common Areas”) and the defendant had failed to submit any plans, information of material used, necessary submissions to the Building Department etc. to Kai Shing. Further, Kai Shing stated that it was holding the occupant responsible for the reinstatement of the Common Areas to its satisfaction.

6.  The plaintiff’s lawyers therefore raised requisitions on title that the defendant has to reinstate the Common Areas. The issues were not resolved and the parties did not complete the sale and purchase on the scheduled date of 29 December 2016.

7.  The defendant’s solicitors wrote to the plaintiff’s solicitors on 3 April 2017 (Trial Bundle B2 page 514-515) offering, amongst others:

“Our client agrees that a sum of HK$300,000.00 be stakeheld by our firm upon completion to cover any expenses to be incurred by your client for any outstanding works as set out in the letter of the management office dated 22^nd November 2016 provided that there is concrete evidence showing that our client is legally liable for such expenses.

Please let us have your draft assignment and letter of undertakings for our approval…if our client’s above proposal is acceptable to your client.”

8.  The plaintiff’s solicitors wrote back on 5 April 2017 (Trial Bundle B2 page 516-517), which stated, amongst others:

“A sum of HK$300,000 shall be deducted and retained by you as stakeholder money upon completion to cover the expenses to be incurred by our client for the compliance of the works as set out in the letter of management office dated 22^nd November 2016.”

9.  There were further correspondence and a letter of undertaking, amongst others, was drafted by the plaintiff’s solicitors, and this was duly approved with various proposed amendments by the defendant’s solicitors in a letter dated 6 April 2016 (Trial Bundle B2 page 529). The plaintiff’s solicitors accordingly made the amendments and sent the draft undertaking letter, amongst others, to the defendant’s solicitors on 7 April 2016 (Trial Bundle B2 page 518-519). Paragraph 4 of the said letter stated:

“To stakeheld HK$300,000.00 at your office being the security money to cover any expenses to be incurred by our client for any outstanding works as set out in the letter of the management office dated 22^nd November 2016. If the expenses to be borne by your (our?) client is insufficient to be covered by the security money, your client shall remit the balance to our client. Conversely, if the expenses can be fully settled by the security money, you shall release the balance to your client.”

10.  Incidentally, the defendant’s solicitors never proposed any amendments to this paragraph all along.

11.  In reliance of this agreement and undertaking (the “Agreement”), the plaintiff completed the transaction on 7 April 2017.

12.  Although this is not relevant to the current claim, it was of note that upon completion, the plaintiff granted a licence to the defendant to continue to occupy the workshops for 2 months, i.e. up to 7 June 2017. However, upon expiry of the licence period, the defendant refused to vacate the workshops unless the plaintiff agreed to release the HK$300,000.00 stakeheld by the defendant’s solicitors. The plaintiff refused and it took various actions in the Land Tribunal for the plaintiff to finally obtained vacant possession on 5 December 2017.

13.  As such, only in January 2018 that the plaintiff could commence the demolition and re-instatement works raised in Kai Shing’s Letter.

14.  On 12 March 2018, the plaintiff obtained a licence agreement from Kai Shing to have exclusive use of the common corridor so the plaintiff would not claim the costs of works on the common corridor in this claim against the defendant.

15.  The plaintiff claims HK$623,100 as the works for demolition and re-instatement of various common areas as specified as areas 1 to 5 in the plan in Trial Bundle B1 page 170 which does not include the common corridor. This is confirmed by the witnesses of the plaintiff, Ms. Wong Man Kit (the director of the plaintiff) and Mak Chung Chun (the director of JR Engineering Consulting Limited which performed the demolition and re-instatement works). I accept such evidence.

16.  The defendant has filed a defence and counter-claim, and also a witness statement of Chesta Chan. However, the defendant and its witness failed to attend the trial.

17.  The line of defence was, firstly, that the defendant claimed that there was “written evidence” in a letter from its former solicitors dated 27 January 2015 that “all the required works” mentioned in Kai Shing’s Letter had been carried out. Further, the defendant’s solicitors had written to the plaintiff’s solicitors on 24 March 2017 (Trail Bundle B2 page 509-511) enclosing a letter issued by “authorised person of the defendant” certifying the re-instatement of the male toilet. As such, the defendant avers that “it had already proved good title”.

18.  However, the letter dated 27 January 2015 is not in the Trial Bundle, and, in any case, this letter, if it exists, and the letter dated 24 March 2017 are no more than “written evidence” of the defendant’s claim: i.e. what work the defendant claimed to be required to be done, which it also claimed to have done. Taken to the highest, the second letter only concerned with the re-instatement of the male toilet, and had not addressed the other alterations mentioned in Kai Shing’s Letter.

19.  More importantly, the defendant clearly failed to obtained a letter showing that Kai Shing accepted and approved such re-instatement work. If the defendant has done so, it would have proved good title and, logically, would not need to accept the Agreement.

20.  I would therefore accept the plaintiff’s claim that the defendant had in fact failed and/or refused to re-instate the various alterations to the Common Areas to the satisfaction of Kai Shing and therefore has failed to show and give good title, which, logically, led to the Agreement.

21.  Secondly, the defence raised as an alternative case that, pursuant to the licence agreement dated 3 January 2003 (Trial Bundle B1 page 87-93), the defendant was granted a licence which allowed it to make the alterations to the Common Areas in question, so the plaintiff could request a similar licence from Kai Shing and, as such, there was no need to carry out the demolition and re-instatement works.

22.  However, the licence agreement only granted a licence for the defendant to use the common corridor and there was no mention of any allowance for the alterations to the Common Areas as the defendant suggested. In fact, the licence agreement clearly stated that “the Licensee shall be fully responsible…to comply with the rules and regulations of the relevant Government Authorities and the DMC.”

23.  It is clear that defendant has breached the DMC in the alterations in the Common Areas and this was raised in Kai Shing’s Letter. As such, even if the plaintiff had requested a “similar” licence (which it did), the demolition and re-instatement works still needed to be carried out.

24.  Thirdly, the defence also raised that the Agreement was out of a gesture of goodwill and sincerity to complete the transaction.

25.  It is of note that the defendant does not dispute the terms of the Agreement. It is absurd to suggest that because an agreement was made as “a gesture of goodwill”, the defendant needed not be bounded by it, not to mention the obvious irony to plead that the agreement was made “out of sincerity” under the circumstances.

26.  The defendant’s counterclaim was for an order for the HK$300,000 stakeheld by the defendant’s then solicitors to be released to the defendant.

27.  As stated above, I see no merit for the defence and, as such, I am of the view that the stakeheld sum should only be released after the defendant has paid the plaintiff the sums of money due in this judgment.

Order

28.  I would accordingly order that the defendant shall pay the plaintiff the sum of HK$623,100.

29.  There be an order nisi for:

a.  Interest payable on this sum at half judgment rate from 13 February 2019 (nominally the date of the last invoice from JR Engineering Consulting Limited) to the date of this judgment, and thereafter at judgment rate until payment; and

b.  Costs of the action be to the plaintiff to be taxed if not agreed with certificate for Counsel.

30.  Upon full payment of the sum, interest and costs as stated above, there be an order for defendant’s former solicitors, namely Messrs. Lau, Wong and Chan, to release the said stakeheld sum of HK$300,000 to the defendant.