FU KAI WA AND OTHERS v. LUK NGAI LING IRENE

HCA 3074/2001

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 3074 OF 2001

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BETWEEN

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HCA 904/2004

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 904 OF 2004

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BETWEEN

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HCA 905/2004

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 905 OF 2004

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(HEARD TOGETHER)

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J U D G M E N T

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Introduction

1.  These three related actions concern the sale and purchase of uncompleted properties in Chai Kek Village, Lam Tsuen, Tai Po, the New Territories.

2.  The Defendant in all three actions, Madam Luk Ngai Ling Irene, is a developer of “small houses” (commonly known as “丁屋” in Chinese) in the Tai Po area.  The subject properties fall within a proposed estate type low-rise village house development at the northeastern part of Chai Kek Village and northern part of Wo Liu, at the southeastern side of Lam Kam Road.  The proposed development will comprise about 60 three-storey village houses at the northeastern and southeastern fringe of Chai Kek Village (there was some suggestion during evidence that the total number of houses will only be 40 odd).  The proposed development is actually a number of “small houses” clustered on various adjoining lots forming an estate type development.

3.  The Plaintiffs in the three actions are all purchasers of properties within the proposed development.  Madam Cheung Wai King, the Plaintiff in HCA 905/2004, has by agreement dated 12 November 1992 agreed to buy from the Defendant the 2^nd floor and the roof of a small house to be erected on Section B of Lot 847 and Section D of Lot 848 in DD 10, at the price of $950,000.  Madam Cheung paid a sum of $250,000 upon signing the agreement (both sides agreed that it was a deposit payment).  Payment of the balance purchase price was tied to the issue of the building licence, completion of building works and issue of the occupation permit.  Significantly, the agreement provided that the building was to be completed “in about 1995-1996”.

4.  The agreement also provided for the payment of a sum of $300,000 as additional premium to the government for the removal of restrictions against alienation so that the house could be freely disposed of in the open market to third parties.  The amount was to be adjusted in accordance with the actual amount of additional premium required by the government.

5.  The agreement also provided that if construction of the small house should not be approved for whatever reason, the developer would provide a similar property to the purchaser as replacement.

6.  Contrary to what was expressly provided in the agreement, construction of the small house did not complete in 1995 or 1996.  In fact, construction had not even begun by end of 1996.  Yet that notwithstanding, Madam Cheung by another agreement dated 24 March 1997 agreed with the Defendant for the sale and purchase of the first floor of the same house yet to be built at the price of $1,250,000.  She paid 20% of the purchase price, i.e. $250,000, upon signing the second agreement (both sides agreed it was a deposit payment).  Payment of the balance purchase price was linked to the government administrative fee and the certificate of compliance respectively.  Unlike the 1992 Agreement, the second agreement did not even mention a time of completion of the construction of the small house or completion of the sale and purchase of the property.  Nor was there any provision offering a replacement property in case construction of the house should not be approved by the government.

7.  Despite the absence of any express terms, it is Madam Cheung’s case and evidence in Court that at the time when the second agreement was signed, the Defendant orally promised her that completion of the sale and purchase would take place in a year’s time.

8.  Madam Cheung Ying Lam, formerly known as Cheung Wai Ping and co-Plaintiff in HCA 3074/2001, is a younger sister of Madam Cheung Wai King.  Through the introduction of her elder sister, Madam Cheung Ying Lam and her friend Mr Fu Kai Wa (formerly known as Fu Yuen Ming Philip), co-Plaintiff in HCA 3074/2001, also entered into an agreement with the Defendant on 24 March 1997 for the sale and purchase of the 2^nd floor and the roof of a 3-storey house to be erected on Section A of Lot 847 in DD 10, at the price of $2 million.

9.  Madam Cheung Ying Lam and Mr Fu paid a total of $400,000, amounting to 20% of the purchase price, within 2 weeks of the agreement (the parties agreed the monies were deposit payments).  Payment of the balance purchase price was tied to the government administrative fee and the additional government premium respectively.

10.  Again, the agreement provided for no completion date, and like her sister Madam Cheung Ying Lam also said in evidence that before signing the agreement, the Defendant had promised her and Mr Fu that completion of the sale and purchase would take place within a year’s time.

11.  Madam Cheung Ying Lam and Mr Fu signed another agreement dated 26 April 1997 with the Defendant for the sale and purchase of the 2^nd floor and the roof of another small house to be erected on the Remaining Portion of Section D of Lot 849, Sub-section 1 of Section E of Lot 849 and Section M of Lot 848, all in DD 10, at the price of $2 million.  20% of the purchase price, i.e. $400,000, was paid upon signing of the agreement (both sides agreed the money was deposit payment).  Payment of the balance purchase price was tied to the administrative fee and completion of the legal formalities at the solicitors’ office.  The agreement did not provide for any completion date; the purchasers again said that the Defendant orally promised them that completion would take place within one year.

12.  Mr Tam Kei Hing, the Plaintiff in HCA 904/2004, is also connected to Madam Cheung Wai King in some way.  His wife is the ex-colleague of Madam Cheung’s sister.  Through the introduction of Madam Cheung, Mr Tam also entered into an agreement dated 7 June 1997 with the Defendant for the sale and purchase of the 2^nd floor and the roof of a small house to be erected on Section B of Lot 848 in DD 10, at the price of $2,120,000.  Mr Tam paid an initial sum of $50,000 upon signing the agreement and another two sums of $170,000 and $204,000 shortly thereafter (both parties agreed they were deposit payments).  Payment of the balance purchase price was tied to the administrative fee and the additional government premium respectively.  The agreement did not specify any completion date.  It is Mr Tam’s case and evidence at trial that the Defendant orally promised him at the time of agreement that completion would take place within a year’s time.

Disputes

13.  Completion of sale and purchase of the properties did not take place as the Plaintiffs say they had been promised, for the simple reason that the properties had not been constructed.  In fact, as of the time of trial, construction of the properties had not even begun.  By solicitors’ letters dated 19 March 2001 and 25 April 2001, the Plaintiffs respectively accepted or purported to accept the (alleged) wrongful repudiations of the subject agreements for sale and purchase.  They claimed the return of their deposits.

14.  The Defendant denied that she was late.  She denied that there was any fixed completion date or any oral promises regarding completion time.  She essentially said that development of the houses was very much in the hands of the government, in terms of approving the applications for construction of the small houses in accordance with the government’s “small house policy”.  In particular, the matter was delayed by the requirement introduced by the government in 1997 for the construction of an “emergency vehicular access” (EVA) for the small houses proposed to be developed.

15.  She refused to return the deposits.  The battle lines were therefore drawn.

16.  Madam Cheung Wai King and Mr Tam commenced proceedings in the District Court in 2001 (i.e. DCCJ 10777/2001 and DCCJ 10120/2001), whereas Madam Cheung Ying Lam and Mr Fu commenced their action in the High Court in the same year.  The District Court proceedings were subsequently transferred to the High Court.  As all three actions raise common questions of law and fact, they have been heard together.  Whereas the Plaintiffs sue to recover the deposits, the Defendant counterclaims for a declaration that the purchasers have wrongfully rescinded the relevant agreements respectively and therefore the Defendant is entitled to forfeit the deposits paid under those agreements.  The Defendant also counterclaims for common law damages.  The Defendant says that by the filing/service of the respective defences and counterclaims, she has accepted the (alleged) wrongful repudiations of the respective agreements by the various Plaintiffs.  Alternatively, she asks for specific performance of the agreements.

17.  Apart from relying on the express term of completion (in the case of Madam Cheung Wai King in relation to the 1992 agreement) and the alleged oral promises made by the Defendant to the Plaintiffs all to the effect that completion would take place within one year, the Plaintiffs also rely on, as an alternative argument, an implied term that completion would take place within a reasonable time.  A further implied term was introduced at the beginning of the trial, namely that the Defendant would exercise due and reasonable diligence in procuring completion of the sale and purchase of the property.  As yet another alternative argument, the Plaintiffs also say that the agreements have been frustrated by the government requirement of an EVA, which would delay completion of the properties indefinitely or render the same “impossible”.  The Plaintiffs also say that in any event, the purported forfeiture of the deposits is contrary to law, as their amounts all exceed the conventional 10%.

The “small house policy”

18.  Given the issues raised in the present case, it is necessary to say something about the government’s small house policy and the steps and procedures involved in making an application to build a small house.

19.  According to the uncontradicted expert evidence placed before the Court, a small house is a single New Territories exempted house granted under the government’s New Territories small house policy.  The policy was approved by the Executive Council on 14 November 1972 and was subsequently implemented from 1 December 1972 via a set of administrative instructions.  The policy is formulated to allow an indigenous villager to apply for permission to erect for himself during his lifetime a small house on a suitable site within his own village.  An indigenous villager is a male person at least 18 years old who is descended through the male line from a resident in 1898 of a recognized village – one which is shown on the list of recognized villages approved by the Director of Lands.

20.  A small house is a building in the New Territories constructed in accordance with the provisions of the Buildings Ordinance (Application to the New Territories) Ordinance (Cap. 121).  The main features are that the building shall neither contain more than 3-storey nor exceed a height of 8.23 metres and the maximum roofed-over area of the house shall not normally exceed 65.03 square metres (i.e. 700 square feet).  Under the Ordinance, a certificate of exemption must be obtained from the District Lands Officer prior to commencement of any building works unless plans prepared by an authorized person have been approved by the Building Authority.  Likewise, the owner must apply for separate certificates of exemption for site formation works and drainage works from the District Lands Officer and shall not commence any works on site before obtaining the certificates of exemption, or securing approval of plans by the Building Authority.

21.  There are several main criteria which must be met before a small house grant can be made.  The most important criterion is that the applicant must be an indigenous villager.  Amongst other requirements, there must be no valid local objections to the proposed building.

22.  As regards the steps and procedures of application, the applicant has to complete a standard small house composite application form, which includes an application form, a declaration form for the certification of the status of the applicant and a statutory declaration form.  The completed form, together with the declaration of the status of the applicant as an indigenous villager signed by the village representative, chairman or vice-chairman of the rural committee concerned, should be submitted to the District Lands Officer for processing.

23.  On receiving an application, the applicant will be informed about the expected date when his case will be processed by making reference to the date of application.  When the application is due for processing, the District Lands Officer will invite the applicant to attend an interview and make the necessary statutory declaration with all evidence.

24.  Following that, notices with a 14-day period will be posted in the village and the rural committee concerned to see whether there are valid local objections to the application.  Furthermore, relevant government departments such as the Planning Department will also be consulted if necessary.

25.  If all eligibility criteria are met and the application is approved, an offer letter will be issued by the District Lands Officer to the applicant with a demand note for payment of the administrative fee and/or premium as the case may be.

26.  When the offer is accepted and payment made by the applicant, the lease or building licence will be prepared for execution by both the applicant and the District Lands Officer.

27.  After execution of the grant or building licence, the applicant will have to apply for and obtain certificates of exemption in respect of building works, site formation works and drainage works from the District Lands Officer before commencement of construction works at site.  He will have to apply to the District Lands Officer for setting out the small house site on ground.

28.  On completion of the building works, a competent person recognized by the Buildings Department and the registered structural engineer/registered professional engineer employed by the applicant shall jointly certify and submit to the District Lands Officer a construction completion report.  After receipt of the report and being satisfied that all other obligations imposed under the lease/building licence conditions have been complied with, the District Lands Officer will issue a certificate of compliance.

29.  Thereafter, the building may be occupied by the applicant.

30.  Land grants or building licences to indigenous villagers under the small house policy usually contain restrictions on the sale or other disposal of the land and an owner may be required to pay an additional premium to the government before the restrictions are removed so that the property may be freely disposed of in the open market to third parties.

31.  On the material question of the average time for obtaining a building licence in the Tai Po area, according to the uncontradicted expert evidence:

“With reference to the performance pledge of the Lands Department for the financial year from April 2001 to March 2002, the performance pledge for execution of New Territories Small House is 1,200 cases whilst the actual number is 1,049 cases instead, which is about 87% of the target figures.  Moreover, a newspaper has reported that there are over 10,000 small house applications on the entire application list, which were still pending process in the year 2002.  We further understand that amongst the earlier mentioned performance pledge of 1,200 cases in 01/02, the average number of cases that can be executed in Tai Po per year is about 200 and in early 2002 Tai Po District Lands Office has just started to handle the applications that were submitted in January 1997.  We have been informed by a senior staff in Lands Department that the accumulated cases in Tai Po from 1997 up to early 2002 is about 2,500 and normal cases still take 7 to 8 years’ time in the application process.

In fact, the actual processing time for small house application by way of obtaining building licence is about 1 to 2 years only applies to very straight forward single case, i.e. all relevant information are simple and adequate.  However, due to the large number of accumulated cases, the actual process time will be much longer and even up to 7 to 8 years.  Whereas for cases which involve small house development in a larger scale rather than a single house, the process time will be further extended.”

32.  The uncontradicted expert evidence pointed out two additional factors affecting the time taken for obtaining approval.  First, the subject buildings are in fact proposed village houses within a large-scale village house development, which generally takes a longer time for approval.

33.  More importantly, the expert evidence suggested that the imposition of the EVA requirement in 1997 has further lengthened the application process:

“Another reason for the prolonged process time is the imposition of the ‘Emergency Vehicular Access’ (EVA) requirement for New Territories Exempted Houses in 1997.  The provision of EVA is to ensure that in case of emergency, emergency vehicles including fire engines and ambulances have ready access to the village houses for the purpose of protecting life and property.  The requirement of EVA has been imposed in 1997 and it concerns NTEH developments with ten or more houses.  The main requirements are that there should be a vehicular access to allow emergency vehicles to reach within 30 metres from any building and access which serves as an EVA [and it] should not be less than 4.5 metres in width with a headroom clearance of 4.5 metres and be capable of withstanding the loading of 16 tonne fire appliances.  Besides, standard pedestal type fire hydrants should be provided along the EVA at 100 metres interval.  In view of the EVA requirement, further proposal in relation to the subject development need to be submitted to Tai Po District Lands Office for further consideration and in turn lengthened the process time.”

Illegality and public policy

34.  On the sale of uncompleted small houses, there have been cases in the past raising the issue of illegality (or breach of public policy).  In short, the case law is to the effect that the making use of the name of an indigenous villager, who does not beneficially own the land on which the building is to be erected, to apply for the necessary approval and building licence under the small house policy from the government to develop the land, which is beneficially owned by the developer, is illegal in its performance.  Under a typical scheme, a false statutory declaration will be made by the villager to the government to the effect that he is the legal and beneficial owner of the land and he has not entered into any private arrangements for his right under the small house policy to be sold to another individual or developer.  The making of such a false statutory declaration is criminal, and such a false statutory declaration also constitutes a tortuous misrepresentation to the government.  According to the authorities, given the illegality, the court will not lend itself to the enforcement of the contract by either party.  However, the illegality will not affect any party’s case if his case does not involve the assertion of any right or the enforcement of the illegal contract.  See Best Sheen Development Ltd v. Official Receiver [2001] 1 HKLRD 866 (Yuen J – as she then was); Chung Mui Teck v. Hang Tak Buddhist Hall Association Ltd [2001] 2 HKLRD 471 (CA).

35.  On the other hand, in the earlier case of Li Pui Wan v. Wong Mei Yin [1997]1 HKLRD 1141 (Chinese), [1998] 1 HKLRD 84 (English translation), the Court of Appeal has held that a transaction in breach of the condition of grant, but which contemplated the making of an application to the government in due course for assignment of the land on payment of an additional premium, was simply “jumping the gun” and not a breach of public policy. 

36.  In other words, it all depends on the particular facts of the case, the contents of the statutory declaration that an applicant/indigenous villager is required to make when he applies under the scheme and the arrangement or understanding he has had with the developer.  All this is a matter of evidence.

37.  In the present case, neither side has seen fit to raise the question of illegality.  Counsel for all parties confirmed with the Court that they had no intention to raise the issue.

38.  At trial, there was no direct evidence on the statutory declarations made by the relevant applicants/indigenous villagers, except the one made by Mr Yau On Wah, the husband of Cheung Wai King.  His declaration, so far as one can see, did not contain any relevant representations.

39.  In the answers to interrogatories filed in HCA 3074/2001 and HCA 905/2004, there were some suggestions that in the statutory declarations made by the relevant applicants, certain representations regarding the absence of any private arrangements with a developer had been made, which might not be true.

40.  What should be the Court’s approach?  In Chao San San v. Worldpart Industrial Limited CACV 158/2002 (21 March 2003), the Court of Appeal had to deal with an illegality argument raised for the first time on appeal, as the issue had not been raised or determined at the trial below.  Yuen JA, giving the judgment of the court, said in paras. 41 and 42 as follows:

“41. Whether the present case was one which involved the making of a false declaration or misrepresentation (in which case Chung Mui Teck would apply) or did not involve such an act (in which case Li Pui Wan would apply) was not determined by the trial judge because there had been no proper pleading in the Amended Statement of Claim that the agreement was illegal or contrary to public policy.  It is not sufficient for a party to plead that an agreement was “unlawful” or “illegal” without setting out the factual grounds in support of that pleading.  The party cannot say that it is up to the other side to ask for particulars.  It is not for the other side to assist a party to formulate its case properly.

42. As such, the issue of illegality or public policy was not addressed at the trial nor dealt with in the judgment below.  It is not appropriate for this court to deal with the issue in the absence of evidence directed to the point.  It is well-established that where an agreement is objected to as illegal as being against public policy, unless it has been specifically pleaded, the Court would only pronounce the agreement void on this ground if the agreement and its setting are fully before the court; it would not do so where the agreement was not ex facie illegal and the Court was not satisfied that all necessary facts were before it (Hong Kong Civil Procedure 2002 18/8/14).  The agreement here was one to subscribe to the purchase of property and such an agreement is not ex facie illegal.  This court is not satisfied that all necessary facts are before it, as no evidence directed to the point had been adduced at trial, and no facts on this issue had been found by the trial judge.”

41.  Subsequently, when the appellants sought leave from the Court of Appeal to appeal to the Court of Final Appeal, Yuen JA further explained the position as follows at para. 9 of the court’s judgment (given on 25 May 2005):

“Secondly, it would appear from the judgment that at trial, the only issue dealt with was misrepresentation (Deputy Judge To’s judgment, para. 21).  On appeal, an attempt was made by counsel for the Plaintiffs to argue illegality or breach of public policy solely on the ground that the units were in "Ting" houses, in reliance on the decision of the Court of Appeal in Chung Mui Teck & others v Hang Tak Buddhist Hall Association Ltd and another [2001] 2 HKLRD 471.  However, as indicated in paras. 39-42 of this court’s judgment, the mere fact that these units were in “Ting” houses does not mean that there must have been illegality or breach of public policy involved in the development (see e.g. Li Pui Wan v Wong Mei Yin [1998] 1 HKLRD 84).  The facts in each case had to be considered.  If it were to be asserted that on the facts of the present case, there was illegality or a breach of public policy, those allegations had to be specifically pleaded.  These allegations were not pleaded, they were not addressed at trial and consequently they were not decided in the judgment.  Illegality and breach of public policy are not issues of pure law that could be decided on appeal in a vacuum of findings of fact.”

42.  Chitty on Contracts (29^th ed.), vol. 1, para. 16-199 sets out the position as follows:

“Pleading of illegality.  Where a contract is ex facie illegal, the court will not enforce it, whether the illegality is pleaded or not; secondly, where the contract is not ex facie illegal, evidence of extraneous circumstances tending to show that it has an illegal object should not be admitted unless the circumstances relied on are pleaded; thirdly, where unpleaded facts, which, taken by themselves, show an illegal object, have been put in evidence (because, perhaps, no objection was raised or because they were adduced for some other purpose), the court should not act on them unless it is satisfied that the whole of the relevant circumstances are before it; but fourthly, where the court is satisfied that all the relevant facts are before it and it can clearly see from them that the contract had an illegal object, it may not enforce the contract, whether the facts were pleaded or not.”

43.  In my view, the present case falls within the third type of situations mentioned by Chitty in the passage cited above.  In other words, this is a case where unpleaded facts, which, taken by themselves, show an illegal mode of performance of contract, have been put in evidence because they were adduced for some other purpose.  In that type of situations, the Court should not act on them unless it is satisfied that the whole of the relevant circumstances are before it.  Having considered the evidence that is actually before me, I am not satisfied that the whole of the relevant circumstances on this question of illegality (or breach of public policy) are before the Court.  For instance, very little is known about the applicants/indigenous villagers involved, or what arrangement, if any, they have entered into with the developer (the Defendant).  The statutory declarations are not in evidence and I do not know what exactly the wordings used were.

44.  Given the incomplete picture, the Court should not enter into the question of illegality on its own when the same is not relied on by either party.

45.  So much for the question of illegality.

Express provision on completion and alleged postponement

46.  Of the several agreements involved in these actions, only the 1992 Agreement signed between Madam Cheung Wai King and the Defendant contained an express provision regarding completion, i.e. completion of the building in about 1995 to 1996.  There is a factual dispute as to whether after signing this agreement, Madam Cheung asked for a postponement of completion until her children/son had completed secondary school education.  In short, it is the Defendant’s evidence that the husband of Madam Cheung, Mr Yau On Wah, is an indigenous villager.  He and Madam Cheung had approached her for buying a piece of land for erecting a small house by themselves.  That was refused but the Defendant counter-offered to sell one of the small houses to be built within the proposed development to them.  They agreed and thus the 1992 agreement selling the top floor together with the roof to Madam Cheung.  In relation to that house, Mr Yau was to act as the indigenous villager/applicant.  The Defendant said that upon signing the 1992 Agreement, she gave an application form to Madam Cheung for her husband to fill in and return to the District Lands Office.  However, afterwards, Madam Cheung told her that as her son/children was/were still small, she would want to delay completion.  That was why her husband had not returned the form to the District Lands Office immediately.

47.  In relation to the completion time, the Defendant said in evidence that at that time there were less cases pending in the District Lands Office and the application process was expected to take several years only.  Moreover, she was less experienced then and it was why she agreed to set out a completion time in the 1992 Agreement, which was merely an estimated time.

48.  The Defendant said that subsequently i.e. in December 1993, Mr Yau eventually submitted the completed application form to the District Lands Office.  There was thus a period of delay of slightly more than one year.

49.  The Defendant’s allegation of a request for postponement was evidenced to some extent by a letter dated 26 March 2001 that she wrote to Madam Cheung Wai King in which the request for postponement of completion by one to two years was mentioned.

50.  On the other hand, both Madam Cheung Wai King and Mr Yau denied the request for postponement in their evidence at trial.  They pointed out that given the age of their son, it would have taken many years before he would have completed his secondary school education.  The Defendant’s assertion was simply incredible.

51.  Having considered all the evidence, I accept the Defendant’s evidence that Madam Cheung Wai King had asked her for a postponement of completion of the property involved in the 1992 Agreement.  I have fully borne in mind what Madam Cheung Wai Kung and Mr Yau said about the age of their son and how long it would have taken their son to complete his secondary education.  I have not forgotten that in the Defendant’s letter of 26 March 2001, the Defendant mentioned a request by Madam Cheung for postponement of one to two years of the completion date rather than until such time when Madam Cheung’s son or children should complete his or their secondary school education.

52.  I do not think the so-called discrepancy is irreconcilable.  I believe, on a balance of probabilities, the Defendant was simply repeating what she had been told by Madam Cheung.  That what Madam Cheung told the Defendant may not have represented the true situation (i.e. how long it would have taken her son or children to finish his or their secondary school education) is neither here nor there.

53.  In so finding, I have paid particular attention to two facts: first, that notwithstanding the specific completion time of 1995 to 1996, not only did Madam Cheung not rescind the 1992 contract when the completion time was not met, she entered into one further agreement in 1997 with the Defendant for the purchase of one more flat in the building.  She also introduced the Plaintiffs in the other 2 actions to buy properties from the Defendant in the same development.  Secondly, Madam Cheung never in her correspondence, including the pre-action letter written by her solicitors, denied the allegation of a request for postponement.

54.  As I said, I find that Madam Cheung did make the request for a postponement of the completion date by one to two years on the pretext that she wanted to move into the property only after her son or children had completed his or their education.

55.  In any event, I do not think this is of much significance.  This factual dispute does not affect the legal position for two reasons.  First, in my view, in the 1992 agreement, time simply was not of the essence, notwithstanding the presence of the express provision regarding completion time.  It should be remembered that the express provision simply said that completion of the building was to take place in about 1995 to 1996.  Furthermore, there was no provision to the effect that time was of the essence of the agreement.  In those circumstances, time was as a general rule not of the essence.  Having considered the terms of the agreement as a whole, as well as the fact that what was involved was a small house to be built pursuant to the small house policy, I am of the view that time was not of the essence of  the agreement.  See Sihombing & Wilkinson, Hong Kong Conveyancing Law and Practice, vol. 1(A), para. XI [138] et seq.

56.  Secondly, assuming that there was no request for postponement of completion by one to two years, and further assuming that time was originally of the essence under the 1992 agreement, in my view, Madam Cheung had plainly affirmed the 1992 agreement when she failed to take any action in 1997 to rescind the agreement for wrongful breach.  She accepted in evidence that she simply chose to continue with the 1992 agreement.  As already mentioned, she even purchased the 1^st floor of the same building to be erected from the Defendant under the 1997 agreement, and introduced the Plaintiffs in the other 2 actions to buy properties in the same development from the Defendant.  Thereafter, on her own evidence, she pressed the Defendant directly or through her secretary for progress of construction of the building and completion of the two sale and purchase agreements.  In early 2001, she also asked the Defendant to provide her with alternative properties, in view of the lack of progress of construction of the building involved in the two agreements, pursuant to an express provision in the 1992 agreement.

57.  As I said, even if I am wrong and there was no request for postponement of completion, I have no doubt that Madam Cheung has affirmed the 1992 agreement notwithstanding the Defendant’s failure to complete construction of the building by 1995/1996.

Alleged oral term on completion within one year

58.  I now move on to deal with the allegations of an oral term in all the agreements made in 1997 under the three actions to the effect that construction of the buildings and thus completion of the sale and purchase agreements would take place within one year from the signing of the agreements.  Madam Cheung Wai King, Madam Cheung Ying Lam and Mr Tam all gave oral evidence to that effect.  In the respective solicitors’ letters written on behalf of Madam Cheung Ying Lam/Mr Fu and Mr Tam to the Defendant, they all made such a claim.  Through counsel the Plaintiffs emphasized to the Court that without the oral agreements, they would not have entered into the respective 1997 agreements at all.  They were content not to include the oral term in their respective agreements because they trusted the Defendant, who was a District Board member in Tai Po at the material times.

59.  On the other hand, the Defendant strenuously denied such an assertion in the box. In the letters she wrote in reply to the purchasers’ solicitors’ letters, she maintained that at the times the agreements were signed, the purchasers well knew that a small house application could take more than 10 years to approve and the applications in the proposed development could take a long time.  In evidence, she also stressed the absence of such a term in the written agreements.  The Defendant further explained in evidence that it was impossible for her to make such a promise in 1997, given the state of development of the project and backlog of small house applications in the District Lands Office, Tai Po.  It must be remembered that by 1997, no construction work had even started because the relevant applications had not yet been approved.  It should also be remembered that the actual building construction period alone would have taken 9 months to one year.

60.  The Defendant also emphasized in evidence that in 1997, it was a seller’s market.  In fact, she was reluctant to sell the properties to the Plaintiffs.  It was only through the introduction of Madam Cheung Wai King that she was prepared to sell further properties to the Plaintiffs in the other 2 actions.  As for the second agreement with Madam Cheung Wai King, the Defendant pointed out that Madam Cheung’s husband (Mr Yau) was the indigenous villager/applicant for the building comprising the property involved in the 1992 agreement, and Madam Cheung was asking to buy one further storey in the same building, i.e. the 1^st floor.  The Defendant explained that by selling two floors in the building to Madam Cheung with her husband Mr Yau as the applicant, the government additional premium could be saved.  It was because no sale of the building to any outsider would be involved – the Defendant would simply keep the ground floor for five years after which the restrictions against alienation would lapse.  In that way, no additional premium would be paid, to the mutual benefit of herself and Madam Cheung Wai King/Mr Yau.

61.  The Defendant therefore said that there was absolutely no reason for her to make any promise to the purchasers that construction of the relevant properties would take one year.  First, she said, it was impossible to tell and the waiting time was expected to be very long.  Secondly, there was no commercial or other incentive or necessity to make such a promise to induce the purchasers to buy.  In fact she was not particularly keen to sell in the sharply rising market.

62.  Indeed, the Defendant said in evidence that she told the Plaintiffs right away when they came to ask her for the sale of properties that she could not promise them any completion date in view of the backlog of cases in the District Lands Office.  She said the Plaintiffs were all aware of the general situation with small house applications and the lengthy procedures involved.

63.  Having considered the entire evidence, again I prefer the evidence of the Defendant to the evidence of the Plaintiffs.  I find that more likely than not, the Defendant did not make the oral promise.  I find that on balance, the circumstances of the case, including the matters specifically mentioned above, as well as the demeanour of the witnesses, pointed toward such a finding.

64.  Again this factual dispute is neither here nor there.  The only pleaded case in relation to the alleged oral promise is that it forms a term of the agreement.  But given the formal requirements in section 3(1) of the Conveyancing and Property Ordinance (Cap. 219), the oral promise, even assuming that it had ever been made, would simply be unenforceable as it does not appear to have been evidenced in writing.

65.  In this regard, Barma J came to the same conclusion in a case the facts of which bore some resemblance to those pertaining in the present case: Winghing Investments Limited v. Lee Hoi Wing HCA 15600/1999 (30 March 2006) paras. 23 & 24.

Alleged implied term – completion within a reasonable time

66.  Moving onto the suggested implied term that completion of the sale and purchase agreements should take place within a reasonable time, I find what Barma J has said (at paras. 26 to 28) in Winghing Investments highly relevant:

“26. First, Winghing contended that there was an implied term of the contract that the sale and purchase should be completed within a reasonable time, notwithstanding that no fixed date for completion was mentioned.  It is true that in most cases where there is no fixed date for completion mentioned the courts will imply an obligation to complete the transaction within a reasonable time.  However, it does not seem to me that such a term falls to be implied in this case.

27. Mr Leung drew my attention to the decision of Fuad J, as he then was, in Wong Hing Cheung v Chan Tim Tsai, an unreported decision dated 5 November 1981, in which the facts were similar to this case in that it was necessary for certain consents and approvals to be obtained before property could be sold.  In that case, the sale and purchase agreement, like this one, reflected the necessity of doing this.  Fuad J held that the plaintiffs in that case could not rely on the principle that completion must take place within a reasonable time in the absence of a fixed date because the parties were well aware that the consent of the District Office was a condition precedent stipulated by law, and had expressly provided for that consent to be obtained under the terms of their agreement.  While Fuad J accepted that remedies might be available if the District Office delayed or refused consent for unacceptable reasons, there was no reason to think that any such matters had occurred in that case.

28. It seems to me that, given the background to the matter, from which it is clear that Winghing was well aware of the formalities that needed to be completed before completion could take place, and also the evidence, which I accept, that it were offered the opportunity to include a cut-off date or long-stop date within the agreement so as to protect its position in the event of delays taking place, there is no room for the implication of any term to the effect that completion should take place within a reasonable time.  I therefore do not consider that any such term can be implied in this case and it therefore follows that there can be no question of the defendants being in breach of such a term.”

67.  Of course, each case depends on its own facts, and I would like to emphasize that in determining whether there was any such implied term in each of the agreements involved in these three actions (no such implied term has been pleaded in relation to the 1992 agreement involving Madam Cheung Wai King), I must look at the facts of each particular case.  However, having done so, I think the conclusion in relation to each of these agreements is inescapable: that there was no such implied term.  The common background of the case, known to both the Defendant and the various purchasers in the three actions, was that they were buying and selling properties situated within buildings to be erected pursuant to the small house policy of the government.  Various approvals, licences and exemptions had to be obtained.  Administrative fees and additional government premiums had to be paid.  There was no definite completion time – ex hypothesi, there was no oral promise of completion within one year.  The parties were all related in the sense that they were all introduced by Madam Cheung Wai King, whose husband Mr Yau is himself an indigenous villager and the applicant of one of the houses.  Despite the couple’s denial, I find that both Madam Cheung Wai King and Mr Yau knew sufficiently about the small house application procedure that they were aware that the process could be lengthy and no definite time for completion could be given.  In fact, in the 1992 agreement, there was an express provision to the effect that if no consent could be obtained, the vendor had to offer an alternative property as replacement (nothing turns on that provision in the present case).  The payment terms in all agreements were expressly related to the steps in the application procedure under the small house policy.  No fixed time was given.  Moreover, I accept the Defendant’s oral evidence that when she was approached by the purchasers in 1997 for the purchase of the properties, she specifically told them that the application process was very lengthy and could take 10 years or more, and she could not promise them any completion date.

68.  Having considered each and every sale and purchase agreement involved in these three actions individually, I have come to the conclusion that in none of them could one imply a term to the effect that completion should take place within a reasonable time.

69.  I therefore reject the Plaintiffs’ argument.

Implied term – due and reasonable diligence

70.  The Plaintiffs contend that there was another implied term – that the Defendant shall exercise due and reasonable diligence in procuring completion of the sale and purchase of the property.  They say the Defendant has breached that implied term in each of the agreements in that although the EVA requirement was imposed in 1997, it was only in August 2000 that the Defendant submitted the proposal of EVA to the District Lands Office, and in any event, no building works had been commenced by the times they respectively wrote to terminate the agreements.

71.  The Defendant does not seriously dispute the existence of the implied term.  Barma J in Winghing Investments (paras. 29 to 31) also accepted two similar implied terms.

72.  The focus is on whether there has been a breach of the implied term as alleged by the Plaintiffs.

73.  In this regard, I have carefully borne in mind the evidence of both the Defendant and her consultant, Mr Hui Kwan Yee.  According to their evidence, the EVA requirement was imposed in 1997, as described above.  It applied to the proposed development.  After learning of the requirement, they immediately started planning the EVA for the proposed development – linking it via the EVA to the main highway, namely Lam Kam Road.  Mr Hui said first he worked out the route and found that the only possible EVA route in the area inevitably overlapped with some private lands.  He and the Defendant then spent some time in consulting with the villagers and attempted to persuade the private landowners to sell their lands to the Defendant.  In evidence was a table of the lands and landowners involved in the proposed EVA drawn up by Mr Hui.  It is apparent from the table that quite a number of landowners were involved.

74.  According to the Defendant and Mr Hui, they had to locate the landowners and directly or through intermediaries negotiated with them for acquiring their lands so as to build the EVA.  But their efforts, which lasted about half a year, proved unsuccessful.  In particular, some lands were held by Tsos/Tongs and the consensus of the members of the Tsos/Tongs had to be obtained for the acquisition of their lands, which proved to be difficult.  Some landowners simply could not be located.

75.  They said that it was then announced that the government was proposing to build a public road linking Chai Kek Village (where the proposed development is to be located) and Lam Kam Road, thus confirming rumours that the Defendant had heard before.  The government’s proposed road, so the Defendant and Mr Hui discovered, could be made use of to become the EVA that they needed in order to satisfy the requirements of the District Lands Office.  As it was the government which was going to build the road, acquisition of the private lands involved would not present any problem, because the government could always resort to its resumption power under the relevant legislation to acquire the lands from any unwilling landowners.  They therefore stopped further negotiations with the private landowners (they were making little headway anyway) and focused their attention on the government’s proposed road.  They tried to communicate with the District Office, Tai Po, with a view to getting more information about the road and obtaining a draft plan.

76.  It may be pointed out that in fact the government’s proposed road did not differ much in terms of the route from the private EVA planned by Mr Hui, except that the points of entry to Lam Kam Road were different under the two plans.

77.  According to the evidence, Mr Hui heard that some landowners involved had since signed memoranda with the government confirming their willingness to sell their lands to the government for the construction of the road.  On the other hand, because of the onset of the Asian economic crisis and the sharp downturn in economy in late 1997/1998, the government subsequently announced in District Board meetings and Heung Yee Kuk meetings that it was shelving the plan to build the public road until such time when the economy should pick up, for want of resources and as a matter of works priority.

78.  This put Mr Hui and the Defendant back to square one in the sense that they could do nothing about the EVA until the government should decide to re-activate the plan.  They could not, so they said in evidence, proceed with their own plan of a private road because the previous problems encountered when they tried to contact the landowners for acquisition of their lands remained, and moreover, the matter was further complicated by the government’s plan to build the public road and the negotiations that the affected landowners had had with the government. Mr Hui and the Defendant said that in those circumstances they could do nothing but only wait for the re-activation of the government’s plan.  They pointed out that back in 1998/1999, nobody could foresee that the economy would remain bad for such a long time so that the shelving of the government’s plan to build the road would have taken so long.

79.  Further Mr Hui emphasized in evidence that during this period of waiting, he did not sit idle.  He continued with the applications for building the small houses at the District Lands Office.  There were various procedures to go through apart from the EVA, such as site inspection, posting up of notices, interviews and so forth, as have been generally described above.  All these were lengthy matters by themselves.

80.  In any event, the long awaited draft plan was obtained in late 1999 or the year 2000.  Mr Hui immediately finalized his plan for the EVA, making use of the government’s draft plan for the public road.  The proposal was finalized in August 2000 and the EVA plan was submitted to the District Lands Office, Tai Po on 21 August 2000.

81.  After submitting the proposal, the Director of Fire Services by letter dated 1 November 2000 made comments on the proposal.  Those comments were duly dealt with and the revised proposal was submitted on 15 December 2000.  On 10 May 2001, the District Lands Office, Tai Po issued another letter to Mr Hui requesting for additional amendments.  Furthermore, the District Lands Office said that the EVA proposal making use of the government’s proposed public road could only be approved after the draft plan for the public road was confirmed by the government.  According to the evidence, the Defendant and Mr Hui then communicated with members of the Tai Po District Board in order to urge the government to re-activate and approve the plan as soon as possible.  They subsequently learned that the plan was finally confirmed and approved in around July 2002.  They therefore re-submitted their EVA proposal on 20 July 2002.  After further exchange of correspondence between the District Lands Office Tai Po and Mr Hui’s company (Hang On), agreement was eventually reached with the District Lands Office for the approval of the proposed EVA in September 2002.  To cut a long story short, according to the evidence given at trial, the District Lands Office, Tai Po orally informed Mr Hui several months ago that building licences could be expected to be issued very soon.  Up to the time of trial, the same had not yet been issued.

82.  As regards the Plaintiffs’ allegation that the Defendant had not started any building works, both Mr Hui and the Defendant emphasized in evidence that they could not start any actual building works without first obtaining the approvals and licences from the government.

83.  I do not think Mr Hui and the Defendant were successfully challenged during cross-examination on their evidence about what they had done or could not do in relation to the EVA.  There was some suggestion that the Defendant could not be contacted after 1997.  I do not think this is really material to the subject under discussion.  In any event, even the Plaintiffs agreed in evidence that they could contact the Defendant’s assistant and were generally told about the EVA requirement which the Defendant was trying to overcome.

84.  I have no difficulty in accepting the Defendant’s and Mr Hui’s evidence on the EVA.  I would like to emphasize that I have considered the various points on credibility that Mr Lau, counsel for the Plaintiffs, has raised in his final submission about the evidence of the Defendant.  I do not think that those matters materially affected what the Defendant, and more importantly what Mr Hui, had respectively told the Court about the EVA and the difficulties they had encountered and the efforts they had made.  There were some discrepancies in the witnesses’ evidence on what had been done during those few years, but they were relatively minor discrepancies going only to the details.

85.  On the whole, I accept their respective evidence on the EVA.

86.  Did the Defendant fail to exercise due and reasonable diligence in complying with the EVA requirement?  Having borne in mind their evidence that I accept and the uncontradicted expert evidence on the small house policy in general and the EVA requirement in particular, I have come to the conclusion that the Defendant has not breached the implied term.  In this regard, I accept the submission of Mr Lam made on behalf of the Defendant in final submission.  Specifically, I am of the view that the Defendant did not delay in working out a private EVA after learning of the EVA requirement in 1997.  The Defendant and Mr Hui did not drag their feet in seeking to contact the landowners concerned with a view to acquiring their lands for the construction of the private EVA.  They were not to blame for not making any progress in their efforts.  They acted reasonably in turning to the government’s proposed road to solve their problem once the government’s intention was confirmed.  They were not unreasonable in waiting for the government’s re-activation of the plan for the public road after the government’s decision to shelve the road for financial reasons.  I also accept that they had no real choice in building a private road after the shelving of the government’s plan for a public road – the previous problems would still have been there.  They could not foresee that the shelving would take so long given that nobody would have foreseen such a lengthy period of recession after the onset of the economic crisis in late 1997.  They were not at fault in not being able to locate a copy of the draft plan of the government earlier, and once they obtained the draft plan they lost no time in finalizing their proposal making use of the government plan and in submitting the proposal to the District Lands Office for approval.  Thereafter, the proposal went to and fro and was eventually approved by the District Lands Office after the government had re-activated and confirmed the draft plan.  Furthermore, I accept their evidence that in the meantime they continued with the applications under the small house policy and went through the standard procedures such as site inspection, posting up notices and attending interviews.

87.  I reject any suggestion that the Defendant was abandoning the whole development or had no incentive to proceed with it.  Although she had not sold other units in buildings to be erected within the development, the Defendant had made arrangements with villagers in Chek Kek Village for the construction of the small houses for the mutual benefit of herself as developer and the village.  She emphasized in evidence that she had every obligation to carry on with and complete the development.  I believe her evidence.

88.  Finally, I should specifically point out that Mr Hui struck me as an honest and straightforward witness.  He was impressive in the box and I have no difficulty in accepting his evidence in total.

89.  As regards the commencement of actual building works, I do no think it can be seriously suggested that building works could be commenced without the necessary approvals and licences having been obtained first.

90.  I do not think the Plaintiffs have made out a case of breach of the implied term in question by reference to the particulars that they rely on.  I reject the Plaintiffs’ argument.

Anticipatory breach by the Defendant?

91.  The Plaintiffs’ alternative argument based on an anticipatory breach of the agreements is also rejected as the argument is premised on the failure of the Defendant to start actual construction work.  The simple answer is that no construction work could be started without first obtaining the approvals and licences.  I have already come to the conclusion that because of the EVA requirement, the application process had been delayed through no fault of the Defendant.  The argument of the Plaintiffs must therefore be rejected.

Frustration

92.  Turning to frustration, both sides agreed that short of a radical departure from what has been originally anticipated, a case on frustration cannot be made out: Davis Contractors Ltd v.  Fareham UDC [1956] AC 696; Wong Lai-ying v. Chinachem Investment Co. Ltd [1980] 1 HKLR 1 (PC).

93.  I do not think the imposition of the EVA requirement constituted such a radical change from what had been envisaged in the agreements.  The EVA requirement simply formed part of the application process and was not something radically different from that which was undertaken under the agreements.  The parties in fact expressly stipulated in the agreements that payment of the balance purchase price was linked to the different stages in the application process under the small house policy.  The parties well knew, as evidenced by the terms of the agreements themselves, that various approvals and consents would have to be obtained from the government.  In fact in the 1992 agreement, there was a specific provision catering for the situation where no such consent could ever be obtained.

94.  On the facts, the EVA requirement was not something that was impossible to comply with.  In fact, on the evidence, it was eventually complied with in 2002 – notwithstanding that there were some minor changes and revisions afterwards (which are not material to the present case).

95.  All in all, I do not think that imposition of the EVA requirement constituted a frustrating event.  I have no difficulty in rejecting this argument.

96.  Taking a more general view of the matter and leaving aside the 1992 agreement for the time being, I do not think the periods of waiting involved in the four agreements, all made in 1997, that form the subject matters of the three actions, are particularly long.  Up to the time of termination or purported termination in 2001, the purchasers had only waited four years.  Given that one is concerned with the buying and selling of a small house under the government’s small house policy, and given the uncontradicted expert evidence on the policy and its operation in practice, which I have no difficulty in accepting in full, I do not think a wait of four years would constitute a good ground for terminating the agreement.

97.  As for the 1992 agreement, in my view by 1997 when Madam Cheung Wai-king decided not to terminate the agreement but rather to proceed with it (and buy the 1/F of the same building under the second agreement), everything that had happened before became water under the bridge.  In any event, the frustration argument only related to the EVA requirement, which was not imposed until 1997.  So again what happened before is neither here nor there.  That being the case, it stands in no different position from the other four agreements all made in 1997.

Conclusion on liability

98.  I do not want to speculate on the true reasons for the Plaintiffs’ decisions to terminate the agreements in 2001.  Maybe that has something to do with the substantial drop in market prices.  I do not know and do not want to make any findings in relation to it.  But the drop in market prices will have to be dealt with when I come to deal with the question of quantum of the Defendant’s counterclaims.

99.  For the reasons explained above, I conclude that it was the Plaintiffs who were in breach of the respective agreements when they purported to terminate them in 2001.  In other words, their actions amounted to wrongful repudiations of the respective agreements.  They were in fact the parties in the wrong.

Return of deposits exceeding 10%

100.  But that is not the end to their claim for return of the deposits.  As mentioned, the deposits all exceed the conventional 10% in amount.  In the absence of special circumstances to justify their amounts, the deposits must be returned in full by the Defendant to the Plaintiffs, subject to the Defendant’s counterclaims for common law damages for wrongful repudiations of the agreements.  Workers Trust & Merchant Bank Ltd v. Dojap Investments Ltd [1993] AC 573; Polyset Ltd v. Panhandat Ltd (2002) 5 HKCFAR 234.

Relief under counterclaims

101.  The Defendant does not really dispute all this.  This brings me to the Defendant’s counterclaims.  By reason of my findings and conclusions reached above, the Defendant must succeed on liability in relation to her counterclaims.  So far as relief is concerned, the Defendant is only suing for forfeiture of the deposits and/or common law damages.  I have already said that there is no question of allowing the Defendant to forfeit the deposits.  Her only remedy lies in common law damages.

Two unpleaded law points

102.  I therefore turn to the question of assessment of (common law) damages under the Defendant’s counterclaims.  Before I deal with the valuation evidence by both sides, which focuses solely on the market values of the properties in August/September 2001 when the respective counterclaims were filed/served, I wish to mention, for the sake of completeness, two law points that Mr Lau representing the Plaintiffs sought to take for the first time during final submission.

103.  First, Mr Lau argued that up until the beginning of the trial, the Defendant had been pursuing forfeiture/common law damages and specific performance in the alternative and she only made the election at trial.  Accordingly, common law damages should be assessed by reference to the difference between the contract price and the market price of the property as of the time of trial, as to which there was simply no valuation evidence from either side.  Counsel therefore argued that the Defendant failed to prove her loss.  Secondly, counsel argued that in any event, where, as here, an anticipatory breach is involved, the proper measure of damages is the difference between the contract price and the market price of the property as of the contractual date of completion or (failing which) the time when the contract ought to have been completed if there had been no breach.  Counsel said that in the present case where there was no contractual date of completion and the buildings have not yet been built, the latter would be sometime in the future, as to which again there was absolutely no valuation evidence at trial.  Counsel therefore again argued that the Defendant failed to prove her loss.

104.  To cut a long story short, having accepted during final submission that those two points could not be raised without proper pleading (Kuan Heng Choi v. Ma Pui Tung [2002] 1 HKC 111), counsel applied for leave to amend the reply and defence to counterclaim in each case to specifically plead those two points, after both counsel had in fact finished their final submissions.  In a ruling, I refused leave.  I will not repeat the reasons I gave for my ruling here.

105.  I would only say here, for the sake of completeness, that so far as the so-called election point is concerned, I think on a fair reading of the Defendant’s original defence and counterclaim in each case, she did choose to accept the wrongful repudiation of contract when she filed/served the counterclaim.  That, in my view, is a fair reading of paragraphs 26, 27 and 30(a), (b) and (c) (as originally numbered) of her defence and counterclaim in HCA 905/2004, paragraphs 15 and 19 (a) and (b) (as originally numbered) of her defence and counterclaim in HCA 904/2004, and paragraphs 19, 20 and 24(a), (b) and (c) (as originally numbered) of her defence and counterclaim in HCA 3074/2001.  Although there was no express reference to her acceptance of the Plaintiff’s wrongful repudiation, I think in those paragraphs, the Defendant’s case was reasonably clear. 

106.  As regards the alternative claim for specific performance, in my view, on a fair reading of the pleadings as a whole, that was really a claim tagged on at the end of the prayer for relief with no real significance.  There was no plea that the Defendant was ready, willing and able to perform her part of the contract.  The claim for specific performance was put simply as an alternative.  I do not think it affected the claim for forfeiture/common law damages.

107.  In any event, as I said, the election point has to be pleaded and I have refused leave to amend to plead it.

108.  As regards the so-called time of assessment point, I would only point out here that McGregor on Damages (17^th ed.) para. 22-035 specifically says that:

“if there is an anticipatory repudiation by the buyer accepted by the seller this event can provide a proper time to take the market value, but a time before such a repudiation cannot be taken”,

citing York Glass Co. Ltd v. Jubb (1926) 134 LT 36 as authority for its proposition.  This view obviously contradicts Mr Lau’s submission.

109.  On the other hand, analogous cases of non-delivery in sale of goods context would seem to support Mr Lau’s proposition: see for instance, Tai Hing Cotton Mill Ltd v. Kamsing Knitting Factory [1979] AC 91; Millett v. Van Heek & Co. [1920] 3 KB 535; Benjamin’s Sale of Goods  (6^th ed.) paras. 16-076 to 16-078; McGregor, paras. 20-114, 20-117 and 20-019.

110.  For reasons that I gave in my ruling, I also refused leave to amend.

111.  In the circumstances, the relevant time for assessment of damages in the present case must be taken to be the time when the counterclaims were filed/served, namely August/September 2001, as the Defendant has contended in her pleadings.  As I said, both parties put in valuation evidence in relation to the market values of the properties as of September  2001 – there was no suggestion that there had been any significant changes in market prices between August and September 2001.

Valuation evidence

112.  To the valuation evidence, I now turn.

113.  Without going into details of the valuation evidence that has been given, I think it is fair to say that the differences between the two experts lie mainly in the choice of comparables and the discount rate.

114.  First, the comparables chosen.  Mr Wong, the Plaintiff’s expert, only saw fit to choose two comparables in May 2001 for comparison.  On the other hand, Miss Sat, the Defendant’s expert, included another four comparables for comparison purposes.  Three of those additional comparables were transacted in late 2002, whereas the fourth one related to a property outside Chai Kek Village.  All these comparables involved completed, as opposed to uncompleted, properties.

115.  On this difference, I prefer the approach of Miss Sat.  I am satisfied that the time and location differences of the four additional comparables can be taken care of adequately by appropriate adjustments.  I think the additional comparables provide a firmer basis for arriving at the market values of the subject properties.

116.  Furthermore, the weighting factor that Miss Sat used in her adjustment exercise was also a reasonable one.

117.  I also accept Miss Sat’s exclusion of one of the two comparables used by Mr Wong as being quite out of line with the average unit rates shown by the other comparables.

118.  As regards the second major difference, namely the discount rate, I do not accept Mr Wong’s use of one year’s property market yield (at 5.3%) to work out the discount rate at 5.03%.  The discount rate refers to the discount that a developer/vendor would give to the buyer who would only be buying an uncompleted property.  In the words of the experts, this is a “pre-sale” situation, in relation to which a discount is called for.

119.  Since the properties in the three actions were not to be completed within one year, Mr Wong’s use of one year to work out the discount rate was simply wrong.  Moreover, the use of the property market yield percentage to work out the discount rate is, in my judgment, erroneous.  The (hypothetical) buyer in the pre-sale transaction involving the small house in our case would not be paying over to the vendor in advance the entire the purchase price, but rather a deposit only.  Put another way, the vendor did not have the use of the whole of the purchase price for one year.

120.  In the circumstances, I do not accept Mr Wong’s discount rate of 5.03%.

121.  On the other hand, Miss Sat came up with a huge discount rate of 35%.  In short, Miss Sat used the 1992 and 1997 agreements in the three actions to work out the discount rates that were actually given by the Defendant to the Plaintiffs (she having worked out the market values of the properties in 1992 and 1997 as completed properties).  She came up with a discount rate of 30% for the 1992 transaction and another discount rate of 9% for the 1997 transactions.  She observed that in 1992, when the market was relatively stable, a discount of 30% was given.  In 1997, when the market was rising rapidly, a discount of 9% was applied.  She was therefore of the view that in September 2001 when the property market was falling, an even greater discount than that actually given by the Defendant in 1992 should be adopted.  She thus came up with the discount rate of 35%.

122.  I do not accept Miss Sat’s approach either.  Her whole approach is based on the several transactions that we have got in the three actions.  In my view, the size of the sample is simply too small for Miss Sat to draw the conclusion that she reached.  In particular, for the 1992 discount rate, there was simply one transaction involving Madam Cheung Wai King’s purchase of property with the Defendant.  It was an unusual transaction for more reasons than one – Madam Cheung’s husband was going to act as the indigenous applicant, and there was a provision offering a replacement flat in case approval could not be obtained.  To conclude that therefore in a stable market the normal discount rate for small houses in 1992 would be around 30% is quite unsupportable.  To further say that because in September 2001, the property market was falling, an even higher discount rate should be adopted is likewise unconvincing.

123.  I can see that there could be many considerations in the minds of the (hypothetical) buyer and vendor respectively regarding what discount, if any, should be given in a pre-sale situation.  Certainly the trends of the market, both present and future, actual or perceived, are highly relevant.  Likewise, the estimated time of completion.  Furthermore, the size of the deposit is also a relevant consideration.

124.  Mr Wong has given evidence that in a pre-sale situation, the usual discount rate, according to his experience, has never exceeded 6-8%.  Miss Sat did not give any evidence to the contrary.

125.  On the present state of evidence, and looking at the matter in the round, I would adopt a discount rate of 10%.  I think this is a reasonable figure to adopt.

Assessment of damages

126.  To conclude, I accept Miss Sat’s valuation figures and premium calculations.  However, I would apply a discount rate of 10%.  In  the circumstances, I would adopt the following figures for assessment of damages:

HCA 905/2004
(1)	1992 property
	Market value	$1,340,000
	Less 10% discount	($134,000)
	Discounted market value	$1,206,000
	Less premium	($213,000)
	Net market value	993,000
(2)	1997 property
	Market value	$1,160,000
	Less 10% discount	($116,000)
	Discounted market value	$1,044,000
	Less premium	($203,000)
	Net market value	$841,000
HCA 904/2004
	Market value	$1,370,000
	Less 10% discount	($137,000)
	Net market value1	$1,233,000
HCA 3074/2001
(1)	March 1997 property
	Market value	$1,340,000
	Less 10% discount	($134,000)
	Net market value1	$1,206,000
(2)	April 1997 property
	Market value	$1,330,000
	Less 10% discount	($133,000)
	Net market value[1]	$1,197,000

127.  Therefore, common law damages (if any), under the counterclaims are assessed as follows:

HCA 905/2004

(1) 1992 property

As the contract price ($950,000) is less than the net market price ($993,000), there is no loss and damage.  The deposit paid ($250,000) should be returned by the Defendant to Madam Cheung Wai King.

(2) 1997 property

 $1,250,000 (contract price) – $841,000 (net market price) – $250,000 (deposit) = $159,000 (payable by Madam Cheung Wai King to the Defendant)

HCA 904/2004

$2,120,000 (contract price) – $1,233,000 (net market price) – $424,000 (deposits) = $463,000 (payable by Mr Tam to the Defendant)

HCA 3074/2001

(1) March 1997 property

$2,000,000 (contract price) – $1,206,000 (net market price) – $400,000 (deposits) = $394,000 (payable by Mr Fu and Madam Cheung Ying Lam to the Defendant)

(2) April 1997 property

$2,000,000 (contract price) – $1,197,000 (net market price) – $400,000 (deposits) = $403,000 (payable by Mr Fu and Madam Cheung Ying Lam to the Defendant)

Judgments

128.  In the circumstances, in HCA 905/2004, I give judgment for the Plaintiff (Madam Cheung Wai King) against the Defendant for the return of deposit of $250,000 with interest thereon at the judgment rate (as agreed) from 5 September 2001 (date of counterclaim when the wrongful repudiation was accepted – thus giving rise to the obligation to return the deposit subject to any claim for common law damages) to the date of judgment and thereafter at the judgment rate until full payment.  On the other hand, I give judgment for the Defendant against the Plaintiff for the sum of $159,000 together with interest thereon at the judgment rate (as agreed) from 5 September 2001 until the date of judgment and thereafter also at the judgment rate until full payment.  I make a costs order nisi that each party bear her own costs in the action and counterclaim.

129.  In HCA 904/2004, I give judgment for the Defendant against the Plaintiff (Mr Tam) for the sum of $463,000 together with interest thereon at the judgment rate (as agreed) from 17 August 2001 (date of counterclaim) until the date of judgment and thereafter also at the judgment rate until full payment.  I make a costs order nisi that the Plaintiff pay to the Defendant the costs of the action and counterclaim, to be taxed if not agreed.

130.  In HCA 3074/2001, I give judgment for the Defendant against the Plaintiffs (Mr Fu and Madam Cheung Ying Lam) for the respective sums of $394,000 and $403,000 (totalling $797,000) together with interest thereon at the judgment rate (as agreed) from 13 September 2001 (date of counterclaim) to the date of judgment and thereafter at the judgment rate until full payment.  I also make a costs order nisi that the Plaintiffs pay to the Defendant the costs of the action and counterclaim, to be taxed if not agreed.

131.  I thank counsel for their assistance.

[1] No premium need be deducted, as the contract price is inclusive of premium.