Tam Kwon Yee and Others v. Seaview Land Development Co Ltd

HCA008120/1981

BETWEEN

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Coram: Hon. Mantell, J.

Date: 5 November 1982

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JUDGMENT

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1. The defendants are property developers. In 1980 they were engaged in building a block of flats in La Salle Road, New Kowloon. The architects were Messrs. Hsia and Associates and the Authorised Person for the purposes of clause 4 of Building Ordinance Chapter 123 was Mr. Hsia himself. Plans had been drawn up and approved, but, of course, it is conceded that it remained the responsibility of the architect and ultimately of the defendants to ensure that the work was carried out in compliance with Building Regulations. The idea was that shares in the building would be offered for sale to members of the public, the acquisition of which would give the right to occupation to one or more flats in the block.

2. On 10th November 1980 each of the three plaintiffs made an application to purchase shares which in each case was accepted and on 14th November 1980, each of the plaintiffs entered into an agreement with the defendants to purchase shares which would in turn entitle each of the plaintiffs to possession of a flat on the 6th floor. Each plaintiff paid money by way of deposit and on account. In each case the agreement was the same and, I am given to understand, in common form for the sale of flats in a building under construction. The terms have been approved by the Law Society for cases in which the same solicitor acts for both sides.

3. By clause 15 of the Agreement time was made of the essence. Clause 3 is in the following terms:-

"(i) The Vendor shall:-

(a) continue the construction of the Building with all due expedition;

(b) comply with the requirements of the Building Authority and of any other relevant government authority relating to the Building;

(c) complete the Building in all respects in accordance with the building plans on or before the 31st day of August 1981 subject to such extensions of time as may be granted by the Authorised Person under sub-clause (iii) hereof.

(ii) If the Vendor fails to complete the Building within the period specified in sub-clause (i)(c) hereof as extended by any extensions of time granted by the Authorised Person as aforesaid the Purchaser shall have the option by notice in writing to the Vendor EITHER to rescind this Agreement in which event the Vendor shall repay to the Purchaser all amounts paid by the Purchaser hereunder together with interest thereon at the rate of one per cent per calendar month from the date or dates on which such amounts were paid to the date of repayment, the payment of such amounts and interest shall be deemed to be in full and final settlement of all claims by the Purchaser against the Vendor hereunder OR to wait for completion of the Building in which event the Vendor shall pay to the Purchaser interest at the rate of one per cent per calendar month on all amounts paid under the provisions of this Agreement from the expiration of the said period as so extended until the date of completion of the Building and such interest shall be paid or allowed as a credit to the Purchaser on completion.

(iii) The Authorised Person shall grant such extensions of time for completion of the Building beyond the date stated in sub-clause (i)(c) hereof as shall appear to him to be reasonable having regard to delay caused by any of the following, that is to say:-

(a) Strike or lock-out of workmen;

(b) Riots or civil commotion;

(c) Force Majeure or Act of God;

(d) Fire or other accident beyond the Vendor's control; or

(e) Act of the Queen's enemies.

4. The work proceeded. There were amendments to the plans which were approved by the Building Authority. On 9th July 1981 Mr. Hsia wrote to the Building Authority stating that the development had been completed and making application for an occupation permit, without which, by virtue of clause 21 of Building Ordinance Chapter 123, no building may be occupied other than by two caretakers. The reply dated 21st July 1981 refused an occupation permit for a number of reasons only one of which was of substance namely that the windows to most of the flats did not comply with Building Regulations. There then followed correspondence between Mr. Hsia and the Authority in which Mr. Hsia's increasingly frantic appeals for re-consideration were met by adamant refusal. At last on 28th August Mr. Hsia wrote pleading a number of matters in mitigation and asking for the breach of regulation to be overlooked as, and I quote:

"To demolish the existing wall areas at this time to provide for extra window areas would constitute a major operation and result in substantial losses for my client".

That final appeal was rejected, it appears, by letter dated 11th September 1981 though I heard from Mr. Hsia, who gave the only oral testimony in the case, that he was in touch with Mr. Gimson of the Building Authority throughout and had, indeed, started on work to cure the defect even before this final rejection of his case. On the evidence, the work was completed to the satisfaction of the Building Authority by about the end of September 1981.

5. In the meantime, 31st August had been reached and passed. The plaintiffs, on the evidence, were not aware of the difficulty which had arisen between the defendant and the Building Authority. Indeed their only information was that contained in the letter which each of them received dated 27th August an example of which is at page 70 of the agreed bundle. Far from disclosing the fact that the Building Authority were insisting on any structural alterations the letter appears to be asserting that the building was completed as at that date and had been for some weeks. It also stated that an extension of 123½ days been granted by the architect, but why mention was made of that fact unless it was in anticipation of a dispute is hard to understand. None of the plaintiffs gave evidence and I am not to know what was in their minds; but it may well be that the property market having flattened out in 1981 they had some time previously repented of their bargains and would have welcomed the chance of release. Certainly nothing in their subsequent conduct contradicts that supposition. On 12th October the defendants gave notice of the fact to the plaintiffs that an occupation permit had been issued, as indeed it had on 9th October, and requiring payment under the terms of the agreement of the balance of the purchase price.

6. On 17th October, solicitors for the defendants wrote to each of the plaintiffs setting out the amount said to be due from them and pressing for completion on or before 26th October. On 20th October, the first clear indication of a dispute appeared from letters written by solicitors on behalf of the 1st and 2nd plaintiffs to be followed by letter written on 22nd October on behalf of the 3rd plaintiff also seeking to preserve rights under the agreement. Amongst other matters raised by solicitors for the 1st and 2nd plaintiffs was the question of the grounds upon which an extension of time had been granted by the architect. The reply dated 23rd October 1981 to that request is illuminating, in view of certain contentions made in this case, in that the letter asserts that the extension had been granted in anticipation of the delay expected in the grant of an occupation permit. The architect's reasons when they were revealed late on 23th October were not, it is conceded for the defendant, grounds justifying any enlargement of the contractual period under the agreement. Continuing with the chronology of events, the agreed bundle discloses attempts by solicitors for the plaintiffs to discover from the Building Authority the date upon which building work had been completed and equally determined attempts by the defendant to secure final payment. On 13th November solicitors, by now acting for all three plaintiffs, by separate letters repudiated each of the agreements contenting (1) that they were void or unenforceable by reason of uncertainty in clause 19 and/ or (2) that each plaintiff was entitled to rescind under the terms of clause 3(i)(c) and clause 3(ii). Proceeding were commenced.

7. Originally the plaintiffs, who have joined in one action, continued in their contention that the whole agreement was void or unenforceable by reason of the uncertain language in clause 19. That point was abandoned by learned Leading Counsel for the plaintiffs in opening this case and does not fall for decision by me. Also abandoned, but later in the case, was an allegation that the defendants were in breach of agreement by reason of their not having carried out certain drainage work until early 1982. The case of each plaintiff in the end rests upon the allegations made cumulatively and alternatively that the defendants were in breach of contract entitling them, the plaintiffs, to rescind under clause 3(i)(b) and 3(i)(c) and also at common law. They claim to be entitled to have their money back and to certain other consequential relief. The defendants contended that they were not in breach of 3(i)(c) and that the building had been completed by 31st August 1981 within the meaning of that sub-clause. it was further contended for the defendants that any breach of clause 3(i)(b), that is failure to comply with Building Regulations, was to be looked at a separate matter from clause 3(i)(c). And if all which could be shown was a failure on the part of the defendants to comply with clause 3(i)(b) that was neither a matter which called of the provisions of clause 3(ii) nor gave raise to any right to rescind at common law. Alternatively it was submitted that even if failure to comply with Building Regulations may be regarded in itself as a breach of clause 3(i)(c) there had none the less been substantial performance of the contract or as Mr. Li put it everything had been done except for the tying up of a few loose ends and that in those circumstances there had, in fact, been no breach giving rise to any right of recission. Finally it was argued that even if the defendants were in breach the only remedy available to the plaintiffs was under clause 3(ii) which in effect put them to their election and that not having so elected within a reasonable time the right to rescind had been lost. Mr. Li contends, therefore, that the defendants are entitled to enforce the contract against each of the defendant.

8. May I say that in deciding this case I have been greatly assisted by the economy, clarity and restraint with which submissions have been made on both sides. But I have not found it an easy case not least because there is no recorded authority on the proper construction to be given to clause 3 around which this case revolves, or if there is, I have not been referred to any.

9. I ask myself these questions: on 1st September 1981 were the defendants in breach of their contractual duty to complete the building in all respects in accordance with the building plans on or before 31st August 1981 as set out in clause 3(i)(c). If the defendants were in breach as at that date, what were the consequences in law and in particular were the plaintiffs entitled to avail themselves of clause 3(ii) as late as 13th November 1981. In addressing me on the first point, Mr. Li seeks to derive comfort from the fact that there is for almost every other step in the performance of this contract a strict timetable laid down. The fact that there is no period prescribed in the agreement within which the developer was to apply for an occupation permit once the building had been completed, Mr. Li contends, supports submission that clause 3(i)(c) simply requires substantial performance in the sense which I have already described. In my judgment, however, clause 3(i)(c) cannot be construed in such a relaxed fashion without seriously undermining the rights conferred by clause 3(11). In my judgment, completion of the building within clause 3(i)(c) means completion to the point where, at the very least, an occupation permit could be obtained. If there had been some failure to comply with Building Regulations which made it impossible to obtain an occupation permit, in my judgment, the building cannot be said to be completed at that date. That was the case here. Even if Mr. Li was right in contending that all that is required by clause 3(i)(c) is substantial performance, and in my judgment that is not the right approach, then the work to be done, affecting as it did the majority of the flats in the development, was such as to make it impossible to say that there had been substantial performance by 31st August 1981. The suggestion was floated that it might make some difference if a particular plaintiffs' flat was unaffected by this additional work. That submission appears to have been abandoned because it is the case, of course, that these plaintiffs were contracting to purchase undivided shares in the whole building. In my judgment, therefore, the defendants were in breach of clause 3(c) as at 31st August 1981.

10. I now turn to the second matter which called for my decision. It is conceded that if the defendants were in breach of clause 3(i)(c), each of the plaintiffs would be entitled to avail himself or herself of their option set out in clause 3(ii). Clause 3(ii) provides that if the vendor fails to complete the building within the period specified, the purchasers shall have the option by notice in writing to the vendor either to rescind the agreement in which event the purchaser would have his or her money back, or to wait for completion and put the vendor under an interest penalty. Mr. Li contends that their option must be exercised within a reasonable time. Mr. Litton says, on the other hand, that as the sub-clause sets out no timetable for the exercise of the option no such qualification should be implied. It is my judgment on the point that Mr. Li is right. The option or, election as it might be described, must be taken up, or exercised, or made within a reasonable time. Election can only be made by a purchaser who is in possession of the facts. The nature of the dispute between the developers and architects on the one side and the Building Authority on the other was unknown to the plaintiffs in this case. Letters sent to them on the 27th August whether intended to be misleading or not, and I am not entirely satisfied that they were not, did not reveal the true position. Solicitors for the plaintiffs were not able, before 13th March chin to get the information they needed from the Building Authority. The decision to rescind contracts as important as these was not to be lightly taken. In my judgment, the plaintiffs did exercise their option to rescind within a reasonable time and their notice of rescission was in each case effective to determine the contract. It follows that each of the plaintiffs is entitled judgment. I order repayment of the sum of $674,000 to the 1st plaintiff. I order repayment of the sum of $674,000 to the 2nd plaintiff and I order repayment to the 3rd plaintiff of the sum of $540,000. Counsel have agreed a formula for the payment of interest on these sums and it is unnecessary for me to express this agreement as part of my judgment other than to say that each plaintiff shall recover interest at the rate agreed between the parties.

Representation:

Mr. Henry Litton, Q.C. & Mr. Ronny Tong (Stevenson & Co.) for Plaintiffs

Mr. Andrew Li (Johnson, Stokes & Master) for Defendant