CHAO SAN SAN AND ANOTHER v. WORLDPART INDUSTRIAL LTD

CACV 158/2002

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 158 OF 2002

(ON APPEAL FROM HCA NO. 14189/1998)

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JUDGMENT

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Hon Yuen JA (giving the judgment of the Court):

1. This is an appeal from a judgment of Deputy Judge To in two actions which have been consolidated. In both actions, the plaintiffs claimed rescission of an agreement dated 16 May 1997, damages for breach of that agreement, damages for fraudulent misrepresentation, and the return of money paid under the agreement. In both actions, the defendant counterclaimed for specific performance of the agreement, and damages in lieu of or in addition to specific performance.

2. The judge dismissed the plaintiffs' claims and entered judgment for the defendant in the counterclaims in both actions. In HCA 14189/98, the counterclaim was in the amount of $593,917.10 and in HCA 15561/98, the counterclaim was in the amount of $306,454.10.

3. Apart from the amount of the counterclaim, there was little difference between the two actions. The first-named plaintiffs in the two actions are sisters, the other plaintiffs are their respective family members, and more or less the same events occurred in both actions. For convenience therefore, the Plaintiffs in both actions are referred to in this judgment as "the Purchasers" and the Defendant is referred to as "the Vendor".

Background

4. The actions were concerned with the sale and purchase of two units in Block "K" of a development known as Regency Court in Hung Leng, Fanling, New Territories. This was a phased development of "ting" houses undertaken by the Vendor.

Property purchase subscription document

5. In each transaction, the agreement of 16 May 1997 was a one-page Chinese document entitled " 樓宇訂購書 " ("Property Purchase Subscription Letter"). This document ("the subscription document") set out the names of the Vendor and the respective Purchasers, the unit the Purchasers subscribed to purchase and the price at which they subscribed to purchase the unit.

6. It was agreed that payment would be made as follows:-

a) initial deposit;

b) balance of the first 10% periodical payment to be paid before 16 May 1997;

c) the second 10% periodical payment to be paid within 2 months from signing the agreement [i.e. 16 July 1997];

d) the third 10% periodical payment to be paid within 10 days from the issue of "入伙紙" to the Vendor (in this respect, there was a dispute between the parties as to whether this meant occupation permit or certificate of compliance);

e) the balance being 70% of the purchase price to be paid within 1 month from the Vendor's notification to the Purchasers in writing.

7. The subscription document further stated that after the payment referred to in (d) above, the Purchasers would be able to decorate and reside in the units.

8. A number of conditions were printed on the subscription document. These included:-

(a) Condition (8) which provided:- "if the vendor, within 3 years from the date of this agreement [16 May 2000], cannot finish the procedure of paying the premium of this property, then the vendor shall refund to the purchaser all deposits paid";

(b) Condition (9) which provided:- "if, within 24 months from the date of this agreement [16 May 1999], the "入伙紙" (occupation permit/certificate of compliance) is not issued, the purchaser has the right to revoke this agreement and the vendor shall refund to the purchaser all payment (with 7% interest on the amount paid)"; and

(c) Condition (10) which provided that "the interests to [in] this subscription letter cannot be transferred".

Events after signing of subscription document

9. The Purchasers made the 1st payment in May 1997 and the 2nd payment in mid-July 1997, in accordance with the terms of the subscription document.

10. In early May 1998, the Vendor informed the Purchasers that the occupation permit/certificate of compliance for Block K had been issued and asked them to make the 3rd payment. The Purchasers protested that the amenities had not yet been built and that they were not provided with a copy of the document, but they nevertheless paid the 3rd payment in full on 11 May 1998.

11. A few days later, on 14 May 1998, the Purchasers collected the keys to the units.

12. On 15 May 1998, the Vendor wrote to the Purchasers informing them that the Government was expected to issue a notice for payment of the premium in the near future and reminded them that a mortgage should be arranged without delay to avoid non-completion, which might lead to forfeiture of the deposits paid. The names of three banks were proposed by the Vendor.

13. On 31 July 1998, the Government issued a demand note for modification of the lease so as to permit assignment of the lot on which Block K stood.

14. On 15 August 1998, the Vendor wrote to the Purchasers referring them to the subscription document and requiring payment of the balance of the purchase price (70%) within 1 month. The Purchasers failed to make any payment. The Purchasers claimed that the banks were either not willing to provide a mortgage of 70% of the purchase price or required further time to consider the Purchasers' application for mortgage.

15. The Purchasers made unsuccessful attempts to renegotiate the purchase prices for the units and then decided not to complete. The present proceedings were issued.

16. The Vendor thereafter sold both units at reduced prices and sought the differences in the prices by way of the counterclaims.

Amended Statement of Claim

17. It would appear from the Amended Statement of Claim (which regrettably was pleaded in a somewhat elliptical style) that the Plaintiffs' case was based on misrepresentation and breach of contract.

18. As a matter of general law, a misrepresentation might, or might not, be incorporated as a term of a contract, depending on the facts of each case. It was not pleaded in the Amended Statement of Claim that any of the misrepresentations had been incorporated as terms of the contract.

19. The breaches of contract alleged in the Amended Statement of Claim was of (a) an implied term that the Vendor could allow the Purchasers to move into the units lawfully after the issue of the occupation permit, (b) an implied term that the Vendor should provide the Purchasers with title deeds to enable them to apply for a mortgage and (c) an implied term that the Vendor had to show good title.

Misrepresentations

20. The pleaded misrepresentations were that:

(a) 90% financing of the purchase price would be available from banks, or failing that, by the Vendor itself;

(b) various amenities, such as a swimming pool and a golf practice area, would be available "in the near future";

(c) the Purchasers would be able to move into their units by July 1997 and they could use the water and electricity from the site until those utilities were provided to their units;

(d) the sale and purchase would be completed within 6 months of the signing of the subscription document [i.e. November 1997].

It was not pleaded that there was a misrepresentation that the occupation permit for Block K would be issued by January 1998, but it would appear that this was addressed at trial. These representations were said to have been made by an estate agent who had claimed to be the Vendor's sole agent, and also by a manager of the Vendor, neither of whom gave evidence at the trial.

21. The Purchasers further alleged that there had been fraudulent misrepresentation by the Vendor in informing them in May 1998 that the

"入伙紙" (occupation permit/certificate of compliance) had been issued. However, it is accepted that if the reference to "入伙紙" meant a certificate of compliance, then it had in fact been issued by that date, as the certificate of compliance was issued on 14 April 1998.

22. The relief sought was for rescission of the agreement, damages for breach of the agreement, damages for fraudulent misrepresentation, return of the money paid to the Vendor, and interest on the damages and the amounts paid. The particulars of loss and damage for "breach of agreement and/or misrepresentation" were said to be the amounts paid, and "costs incurred for alternative accommodation from July 1997 onwards". There was no claim for damages (whether general or special) for disappointment at the loss of (or delay in providing) pleasure amenities.

23. It was not pleaded in the statement of claim that the subscription to purchase the properties was illegal or contrary to public policy by reason of any false declaration or misrepresentation involved in the development of the land on which Block K stood.

The judgment

24. In his judgment, the trial judge, after seeing and hearing the Purchasers, held that some of their allegations regarding misrepresentations were inherently contradictory. As for the other allegations, he held that the representations were not representations of fact, but of intention and opinion, and the Purchasers had failed to show that the intention and opinion were not genuinely or honestly held by the Vendor.

Moving in by July 1997

25. The Purchasers alleged that they were told that they would be able to move into their units by July 1997. The representation was said to have been made by the estate agent and the Vendor's manager. Although neither the estate agent nor the manager gave evidence, the judge was clearly entitled to reject the Purchasers' evidence by reason of its inherent incredibility.

26. The first consideration was whether such a misrepresentation had been made. The Purchasers' allegation was not supported by any documentary evidence. On the contrary, the subscription document (which the trial judge found the Purchasers would have read carefully as evidencing the terms of their agreement with the Vendor) stated clearly that they would be able to move in after the 3rd payment. This 3rd payment would be after the issue of the occupation permit, but even on the Purchasers' own case, the occupation permit would be issued only at around Chinese New Year in 1998 (well after July 1997).

27. Even if one were to put that to one side and assume that there had been misrepresentations made to the Purchasers that they could move in by July 1997, they could not have relied on those misrepresentations, as it simply defies common sense for people to move into residential premises before an occupation permit is issued, and the trial judge found that the Purchasers were well-educated people who would have known that.

Sale and purchase to be completed within 6 months

28. For the same reason, the judge also rejected the Purchasers' allegations that there had been misrepresentations that the sale and purchase would be completed within 6 months of the subscription document (i.e. November 1997). Again this allegation was not supported by any documentary evidence; the subscription document stated clearly that completion would only take place after the issue of the occupation permit, and it similarly defies common sense for completion of a sale and purchase to take place prior to the issue of the occupation permit.

29. In light of the above, we can see no ground for interfering with the trial judge's findings against the Purchasers.

Issue of Certificate of Compliance

30. The Purchasers also alleged at trial that it had been represented to them that the occupation permit would be issued by January 1998. Their first complaint was that no occupation permit was ever issued because what was issued was a certificate of compliance (in effect the equivalent of an occupation permit for "ting" houses). The Purchasers' case is that they had not realized that their units were in a "ting" house.

31. The judge was entitled to reject that contention. The "information for sales" of which the Purchasers had a copy actually referred to "政府發出滿意紙" (certificate of compliance). Further, the subscription document referred to“補地價”(payment of a premium for modification of a lease). Both were common indicia that the property was a “ting" house.

32. As for the Purchasers' second complaint that the certificate of compliance was to have been issued by January 1998 but was actually issued in April 1998, the judge noted that the issue of the certificate of compliance was not within the Vendor's control, so that the Vendor could only have been giving an opinion as to the estimated date of issue.

33. In this respect, the judge accepted the evidence of Mr So, the Vendor's Project Manager, that it was reasonable, given the usual time-table for the issue of a certificate of compliance, to expect it to be issued by January 1998. There was eventually a delay by 3 1/2 months, but the judge did not find it proved that the Vendor's estimate was not genuine or honest. Nothing has been presented to this court by way of incontrovertible evidence to show that the judge erred in arriving at that finding of fact.

34. As noted earlier in this judgment, it had not been pleaded by the Purchasers that the representation that the certificate of compliance would be issued by January 1998 had been incorporated as a term of the agreement. On the contrary, the subscription document provided expressly that if the certificate of compliance was not issued within 24 months [i.e. by May 1999], the Purchasers would be entitled to rescind the agreement and recover the payments made with interest at an agreed rate. Therefore, the fact that the certificate of compliance was issued later than January 1998 was not actionable as a breach of contract either.

Amenities

35. As for the allegations of misrepresentations regarding amenities, the Purchasers' case was that the estate agent had said in May 1997 that a swimming pool would be "built in the near future".

36. The judge found that the Vendor had applied for permission to build the swimming pool a year ago, in 1996. However the grant of permission had been held up pending the obtaining of Government permission for the use of land, which was eventually given in January 1998. Building of the swimming pool then commenced. The judge found that since the application to build the swimming pool had been made a year ago, the Vendor's intention in May 1997 to build a swimming pool in the near future was genuinely held.

37. As for the golf practice area, the judge found that it was provided by October 1998, but that afterwards, the residents asked for it to be turned into a car parking area. As the Purchasers had already evinced their intentions no longer to continue with these transactions before October 1998, the change of use is not actionable.

Mortgage

38. Finally as to the availability of a mortgage, it was clear from the Pamphlet, and indeed would have been a matter of common sense, that the Vendor did not guarantee that the Purchasers would be able to obtain a mortgage for the purchase of the units. As the Pamphlet expressly stated at paragraph 2.3, the banks would approve mortgage applications according to the substantive circumstances in each case. The judge found that in May 1997 the Vendor honestly held the opinion that the banks would offer a 70% loan on the purchase price if other circumstances were amenable. The drop in the market between May 1997 and September 1998 was not a fact which the Vendor could have controlled or foreseen. No incontrovertible evidence has been presented to this court to show that the trial judge had erred in making this finding of fact.

Breach of contract

39. As for the breaches of the implied terms pleaded in the Amended Statement of Claim, it was not evident from the pleading why it would have been "unlawful" for the Vendor to allow the Purchasers to move in after the issue of the certificate of compliance. Before this court, Mr Anthony Cheung, counsel for the Purchasers, sought to argue illegality on the ground that the units were in a "ting" house and he referred to 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 which held that where in the course of development of a "ting" house, the making of a false declaration or misrepresentation by the indigenous villager would be involved, the contract was unlawful and unenforceable.

40. The Vendor on the other hand referred to the Court of Appeal decision in Li Pui Wan v Wong Mei Yin [1998] 1 HKLRD 84 which held that a transaction in breach of the conditions of grant, but which contemplated the making of an application to the Government in due course for assignment of the land on payment of a premium, was simply "jumping the gun" and not a breach of public policy.

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.

43. As for the other allegations of breach of contract in failing to provide title deeds and show good title, the short answer is that the Purchasers had never raised any requisitions. When they were unable to obtain reductions in the price, they simply terminated the agreements before completion.

Order

44. In the circumstances, this appeal must be dismissed with an order nisi that the Appellants bear the Respondent's costs save for the costs of the Respondent's Notice as it was simply a skeleton submission in support of the judgment below.