Tsai Chuen Kwong and Another v. Chow Kam Chuen and Others

HCA006005/1993

1993, No. A6005

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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Coram: the Hon Mr Justice Findlay, in Court

Dates of hearing: 28, 29 September and 2 October 1995

Date of handing down of judgment: 6 October 1995

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JUDGMENT

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Background

1. On 13 September 1990, the defendants entered into an agreement, ("the building agreement") with the owners of Lot 12 Ma Wan. In terms of this agreement, the defendants were to erect two buildings, called houses 24 and 24A, on the lot, and the owners would then assign house 24 to the defendants, keeping house 24A. There were three sketches of house 24 annexed to this agreement, showing the front and side elevations and the top. The houses were to be erected in accordance with the "plans and specifications . . . (copies of which duly signed by the Owners are hereto annexed for identification purposes) and other detailed plans and specifications prepared or to be prepared by the [defendants] but subject to the approval of the District Lands Officer.".

2. The plaintiffs are the owners of lots 133 and 240 Ma Wan. They entered into an agreement dated 30 November 1990 ("the exchange agreement") with the defendants in terms of which the plaintiffs would assign lots 133 and 240 to the defendants and the defendants would assign as confirmor the ground floor only of house 24 to the plaintiffs.

3. The exchange agreement referred to the building agreement, and said that house 24 was to be assigned to the defendants. It was recorded that house 24 was under construction and no occupation permit in respect of it has been issued. The assignments of lots 133 and 240 against the assignment of the ground floor of house 24 were to be concurrent. The completion date was to be the twenty-first day from the date of the issue of the occupation permit the ground floor of house 24.

The Plaintiffs' Case

4. The plaintiffs allege that clause 5(a) of the exchange agreement provided that the defendants warranted and guaranteed that the ground floor of house 24 "shall be erected and constructed according to the plans annexed" to the building agreement. This warranty was said to be a condition precedent of the agreement and a condition to the obligation of the plaintiffs. "In the event that any of the above warranty is not honoured [the plaintiffs] may terminate this agreement without any compensation or claim".

5. The plaintiffs also allege that "on or before the signing of the exchange agreement" the parties orally agreed that certain materials were to be used in constructing house 24 -

1. the outer wall was to have mosaic stones;

2. the french windows and all other windows were to have shady glass; and

3. the front parapet wall at the roof was to have green transparent tiles.

6. This oral agreement formed part of the exchange agreement, or was a collateral agreement. Clause 24 of the exchange agreement provided that the agreement sets out the "full bargain between the parties and supersedes all previous statement, representation or agreement whether oral, in writing or implied between the parties".

7. The plaintiffs say that the defendants did not finish building the ground floor of house 24 until "in or around April 1992 despite prolonged delays."

8. It is alleged by the plaintiffs that, in breach of clause 5(a) "and/or" the oral agreement, the ground floor "was not erected and constructed in strict conformity to the Plans.". The particulars given are as follow -

"(a) No balcony has been erected at the first and second floors of House No. 24. The open balustrade and french windows shown on the Plans are replaced by a concrete upstand and aluminium windows instead.

(b) The french windows on the front elevation of the Property have not been provided for and a folding steel-shutter is installed instead.

(c) The 3 openings with hoods for air-conditioners on the side elevation of House No. 24 namely the east-facing wall have not been provided for.

(d) The windows on the side elevation of House No. 24 do not have the canopies or hoods as shown on the Plans;

(e) The side elevation namely the east-facing wall of House No. 24 has been materially altered in that the window sizes dispositions and locations are not in accordance with the Plans; and the door at G/F the Property ("the Door") has been omitted. Further and in particular there are 4 windows instead of 3 as shown in the Plans. Two windows have 3 panes each, 1 window has 2 panes, 1 window has 1 pane, whereas the 3 windows as shown in the Plans all have 2 panes each. The sizes of the windows at G/F the Property are also larger than those as shown in the Plans.

(f) Both a staircase and the Door which should be located in the side elevation of the Property appears in the front elevation instead. As a result, not only is the look/out-look and aesthetic value of House No. 24 and the Property affected; but the frontage of the Property is also reduced namely from about 5.3 metre to about 4.2 metre.

(g) The front parapet wall of the front elevation of House No. 24 is not slanting outwards as shown in the Plans but constructed in an upright angle instead.

(h) There is no stairhood on the roof-top of House No. 24."

9. The plaintiffs allege that in breach of the oral agreement, "the Defendants have not constructed and erected House No. 24 by using the materials as specified in paragraph 5 of the Statement of Claim herein". The particulars are -

(i) The outer wall was not covered with mosaic stones but was limewashed instead.

(ii) All window panes were not made of shady glass but were made of simple glass only.

(iii) The front parapet wall at the roof was not covered with green transparent tiles but was limewashed instead.

10. The plaintiffs say that "By reason of the matters aforesaid the outlook style atmosphere and value aesthetic and/or monetary of the Property is seriously affected", and that "although not all the Particulars of Breach of the Agreement(s) recited hereinabove relate exclusively to the Property; the Property being part of House No. 24 is also affected".

11. The plaintiffs go on to say that -

"By virtue of the matters aforesaid, the Defendants have wrongfully committed a breach of conditions and/or a fundamental breach and/or have wrongfully repudiated the Exchange Agreement and the Oral Agreement, which breaches and/or wrongful repudiation have been accepted by 2 letters both dated 8th December 1992 and 2 letters both dated 6th March 1993 addressed by the Plaintiffs' solicitors, Messrs. Y.L. Yeung & Co. to the Defendants' solicitors, Messrs. Paul Kwong & Co. and Messrs. Edward C.T. Wong & Co. respectively ("the said letters"), and have thereby rescinded the Exchange Agreement and the Oral Agreement and become discharged from any further performance of the same. In so far as may be necessary the Plaintiffs accept the said breaches and/or wrongful repudiation and rescind the Exchange Agreement and Oral Agreement by the issuance and service of the Statement of Claim herein.

Further or alternatively, by virtue of the matters aforesaid the Defendants have not honoured the warranty in Clause 5 (a) of the Exchange Agreement and the Plaintiffs have become entitled to terminate the Exchange Agreement without any compensation or claim pursuant to Clause 5 (a) of the Exchange Agreement. By the said letters, the Plaintiffs have duly terminated the Exchange Agreement. In so far as may be necessary, the Plaintiffs hereby terminate the Exchange Agreement pursuant to Clause 5 (a) thereof by the issuance and service of the Statement of Claim herein.

Further or alternatively, the Plaintiffs aver that Clause 5 (a) of the Exchange Agreement is a condition precedent or a condition subsequent of the Exchange Agreement and/or the obligations of the Plaintiffs under the Exchange Agreement. The said condition precedent was not fulfilled alternatively the said condition subsequent has occurred, in that the Defendants have failed to comply with Clause 5 (a) of the Exchange Agreement as particularised in paragraph 8 of the Statement of Claim herein. Further or alternatively, the Plaintiffs aver that the Defendants' obligation to construct the Property according to the Plans and the Plaintiffs' obligation to assign the Land are concurrent conditions. In the premises, the Plaintiffs' obligation to assign the Land to the Defendants never arises or at all and the Plaintiffs have become entitled to terminate the Exchange Agreement. By the said letters, the Plaintiffs duly recorded that their obligation to assign the Land to the Defendants never arises or at all and gave notice to the Defendants to terminate the Exchange Agreement."

The Defence

12. The first defendant filed a defence separate from that of the second and third defendants, but the allegations are essentially the same. I will deal in detail only with the defence of the first defendant. Only he gave evidence, and Mr Cheuk adopted the first defendant's case as that of the second and third defendants.

13. The first defendant pleads that it was an implied term of the exchange agreement as based "on the mutual intention of the parties and/or as a matter of law that the Plans were for identification purpose and/or the Defendants could have amended the Plans as they deemed fit" because "At the time of entering into the Exchange Agreement the Plaintiffs had knowledge about the Building Agreement. Clause 1 of the Building Agreement had provided that the Plans were for identification purpose and the Defendants would have other detailed plans."

14. The first defendant says that the erection and construction of house 24 and house 24A had been done with due expediency under the relevant circumstances. He says that application for approval to the District Land Office was submitted on 28 June 1990, certificates of exemption were only issued on or about 25 November 1991 and the first defendant completed the construction in about April 1992.

15. The first defendant says that the warranty in clause 5(a) of the exchange agreement was confined to the ground floor of house 24, but, in any event, the first defendant was not obliged to erect and construct the ground floor of house 24 in strict conformity with the plans.

16. The first defendant goes on to allege that "parts of the Plans had been amended after the 1st Defendant had obtained the approval of the Plaintiffs or per the request of the Plaintiffs, and gives the following particulars -

(a) Sometimes at about the beginning of 1991, the 1st Defendant took the 1st Plaintiff to Lot No. 366 in Ma Wan to inspect a house as erected thereon . . . and told the 1st Plaintiff that House No. 24 as constructed and erected would not like the said house, namely, there would be no balcony for the first and second floors of House No. 24 so that the ground floor of House No. 24 could have more space

(b) Sometime in about late March 1991 during inspection of House No. 24 as under construction,

(i) the 1st Plaintiff orally requested the 1st Defendant to install a folding shutter for the Property in place of the French windows as shown on the Plans as the Plaintiffs wanted to use the Property as a shop . . . ;

(ii) the 1st Defendant agreed to the said request;

(iii) the 1st Defendant also orally pointed out to the 1st Plaintiff the change [relating to the balcony] and also the following intended alterations to the Plans, namely:

(1) the open balustrade and French windows as shown on the plans would be replaced by concrete upstand and aluminium windows;

(2) there would be no special openings for air-conditioners on the side elevation of House No. 24;

(3) the windows on the side elevation of House No. 24 would not have canopies or hoods;

(4) there would be 3 group of windows for each floor of each floor of House No. 24 at its side elevation;

(5) the front parapet wall of House No. 24 would be constructed as upright concrete wall;

(6) there would be no stairhood on the roof top of House No. 24;

(7) the staircase of House No. 24 would be relocated to the front elevation.

(iv) the 1st Plaintiff orally approved the changes.

17. Alternatively, the first defendant says that the plaintiffs had knowledge of the alterations and acquiesced in them, and so has waived the alleged breaches or should be estopped from asserting them. The particulars given are that the erection and construction of house 24 was done openly so that the plaintiffs had ample opportunity to see what was being done, particularly as the plaintiffs' father resided a short distance from house 24, the plaintiffs visited him there and must have had knowledge of the changes. It is said that the plaintiffs had never raised any objection to the alterations when the same were being made or after the same were made, that the first defendant had spent money and resources in carrying out the building works for house 24 including the alterations and had thus suffered detriment, and that, despite previous correspondence between the solicitors for the plaintiffs and solicitors for the first defendant on the performance of the exchange agreement, the plaintiffs only came to complain about some of the alterations in a letter dated 8th December 1992 from the plaintiffs' solicitors.

18. The first defendant concedes that the external wall of house 24 was limewashed, that the window panes were not made of shady glass and that the front roof parapet wall was limewashed.

19. The first defendant says that, in any event, the changes were minor in nature, and that they were not in breach of the exchange agreement, or, even if they were, the plaintiffs' remedy was in damages.

The Evidence

The First Plaintiff

20. Only the first plaintiff gave evidence in support of the plaintiffs' case.

21. He said that, in about September or October 1990, the first defendant approached him and proposed the land exchange. The first defendant told him of his arrangement with the owners of lot 12; that, when the houses were completed, they would have one block and the defendants, the other. Almost immediately after saying this, the first plaintiff said that the first defendant did not mention the building agreement to him, and never showed the document to him. When the first defendant proposed the exchange, there was no discussion about the house, save that he said he would be able to hand it over within three to six months. Mr Cheung was having difficulties getting the first plaintiff's attention to the oral agreement, so I intervened and asked him if he knew what the house would look like. The first plaintiff then said that the first defendant said that there would be external mosaic stone and transparent tiles; the mosaic would look pretty with sunshine. The first defendant also said there would be french windows, and the house would be the best looking house of all the houses in Ma Wan main street. The glass would be tea-coloured. The transparent tiles for the roof would be green. The first defendant took him to a house at lot 366, and to the site of house 24. At the site of house 24, he saw only a construction site; the framework was under construction. He saw the building agreement and the plans attached. The first defendant showed him the plans; they just flicked through them quickly. The first defendant took him to lot 366 around January 1991 and told him he would build house 24 in almost the same way as the house on that site. The major part of this house was complete; he could see the balcony on that house "and things like that". He took some photographs of this house; he says shortly after this inspection, although the house in the photographs is finished and appears lived in.

22. The first plaintiff says that there was no work done on house 24 for 12 months. He then said that the work ceased in February-March 1991 and did not start again until after October 1991. He instructed his lawyers to write to the defendants "to ask him to cancel the contract". The house was completed in April 1992. He went to look at it. It "looked like nothing - completely different from the architectural plan"; he said he was referring to the plans annexed to the building agreement. He got these plans through his lawyer after the completion of the house. He then corrected himself, saying that he meant when the house was half completed, not fully completed. He chased for these plans because the construction had ceased.

23. When the house was complete, the first plaintiff said that he disliked it; it was different from that promised. He wanted to use the house as a holiday home.

24. The first plaintiff said that the first defendant did not discuss the changes to the house with him. He visited the house when it was under construction; in around January 1991 - only the site was there; there was no construction. He visited the site after construction started; around September- October 1990. The first plaintiff became confused about this, eventually saying that construction work was going on before November 1990. He noticed that the work was not going on in February 1991. During the period February-November 1991, he did not discuss the design of the house with the first defendant. The first defendant never told him that the house would be different from the plans.

25. His father's house was next door to house 24. When he visited his father, and the house was under construction, he walked past it. He noticed the deviations from the plans; it was very different and unacceptable. He did not ask the first defendant why this was so; he had argued with him already, and he would not ask him. He did not complain for this reason only; there were many reasons - because the completion date was overdue for long period and the finished product looked completely different. He did not complain that it was different because they had argued already; if he asked the first defendant, the first defendant would definitely scold him, and he had already issued two solicitor's letters.

26. No one told him about the clause in the building agreement that the plans were for identification purposes.

27. Under cross-examination, the first plaintiff said that his father operated a shop at the premises near house 24. He had no idea that, prior to the exchange agreement, his father had asked the first defendant to find a shop space for him. He had no personal knowledge of this. A solicitor explained the contents of the exchange agreement to him "briefly" when he signed it. The plans annexed to the building agreement were flipped through. He was aware that they were very rudimentary plans, not detailed. He did not bother to ask for copies of these rudimentary plans. The first plaintiff was evasive when questioned about why he did not insist on the terms regarding the mosaic tiles and other items being incorporated into the exchange agreement. There was an agreement to have these terms written down, but they were not written down in the exchange agreement.

28. He did not know that the certificates of exemption were granted only on 25 November 1991.

29. On 10 October 1991, the plaintiffs' solicitor wrote to the defendants, referring to the exchange agreement, and saying that more than nine months had elapsed since the agreement. A complaint was made about the delay in completion of house 24. Notice to complete the house within 14 days was given, failing which the agreement would be treated as rescinded.

30. A letter dated 11 August 1992 was written by the plaintiffs' solicitor to the defendants on the first plaintiff's instructions. This letter referred to the letter of 10 October 1991, and argued that the exchange agreement had been rescinded. It asked the defendants to vacate the registration of the agreement and to execute a cancellation agreement. The first plaintiff said that house 24 was already complete at this stage, and the first plaintiff had had the opportunity of seeing how terrible the building looked. He agreed that there was no mention of this in the letter of 11 August 1992. The defendants' solicitor responded to this letter on 22 August 1992, denying that the exchange agreement has been rescinded and offering to complete the exchange. The defendants' solicitor then wrote letters on 3, 14 and 30 September 1992, 6 and 27 November 1992 and 2, 4 and 7 December 1992, asking the plaintiffs to complete. There was no response to these letters until 8 December 1992, when the plaintiffs' solicitor wrote, making no mention of the alleged delay in completion of the house and the purported rescission, but saying, for the first time, that the house was not erected in accordance with the plans, and seeking to argue that the plaintiffs were not bound for this reason. No mention is made in this letter of the items such as the mosaic tiles featuring in the alleged oral agreement. The first plaintiff says that these developments were mentioned to him by his solicitor, but he did not know what they were taking about.

31. The first plaintiff agreed that, sometime in 1991, another developer was seeking properties in Ma Wan and offering favourable terms to acquire them.

32. He did not ask his father to monitor progress of the building of house 24, only to have a look from time to time. His father reported progress to him. The first plaintiff agreed that he saw that the house was different to that agreed, but he did not complain. He did not do so because, when the building was under construction, he already had had an argument with the first defendant, and if he complained, he would kick him out. Anyway, the agreement was already cancelled, so the way the house was built did not matter to him. He did not ask his solicitor to write to complain.

33. In re-examination, the first plaintiff said he got the idea that the agreement was already cancelled about November 1991.

The First Defendant

34. The first defendant gave evidence. He said that the exchange agreement came about because, in early 1990, the plaintiffs' father asked him to look for a shop space for him in main street. He asked if the first defendant would sell one unit of lot 12 to him. After that, the first defendant discussed the exchange agreement with the first plaintiff. There was no mention of the design of house 24 at this stage. He told the first plaintiff that the building agreement has no specifications as to materials to be used. The house was to be a general village house, with doors, windows, toilets, kitchen and the most important part of a village house, the manhole. He did not promise the first plaintiff any particular feature, but agreed to do the internal partitioning. When the exchange agreement was signed, the building agreement was there. He said that the two documents were made on the same day, but then retracted this. The building agreement was explained to them by the solicitor. It was mentioned that the plans were for reference only.

35. House 24 was completed in April 1992. After signing the exchange agreement, he took the first plaintiff to lot 366 several times so that he could point out the differences in the features of that house and house 24. He told the first plaintiff that there would be no flat canopy over the windows and no french windows. In place of the french window at the entrance, there would be an iron gate. This was to be done because the plaintiffs' father wanted to use the unit as a shop space, and because, with french windows, the glass would be broken and items stolen. It was agreed with the first plaintiff that there would be no balconies so that the whole building could be extended to the boundary of the lot so that full use was made of the land. It was also agreed that the windows would be enlarged so that the extended building would not be dark. All the changes were notified to the first plaintiff on one occasion, but he did not remember when this was. This was before construction commenced. The plaintiffs' father did not concern himself with house 24; he could see it every day whenever he opened his door. During the visits of the first plaintiff to Ma Wan, he would visit house 24. He did not raise any complaint about the look or design of the building.

36. Before the receipt of the letter of 8 December 1992, complaining about the changes, the first defendant never received any complaints about this.

37. Under cross-examination, the first defendant was asked why it occurred to him to tell the first plaintiff that the building agreement gave no specifications for materials. He did not give a satisfactory answer to this question. It was pointed out to him that in his statement made for the purposes of this trial, he said that, before signing the exchange agreement, he did not discuss with the first plaintiff the materials. He said he meant in evidence that they had discussed the transparent tiles and french windows, not materials in general. He had told the first plaintiff that there would be no transparent tiles or french windows. He had told him this because the first plaintiff had wanted transparent tiles on the roof. This was before the signing of the exchange agreement. He took the first plaintiff to lot 366 several times after the agreement was signed. He did not mention the discussion before the signing of the agreement earlier because he could not remember which discussion was which. The first defendant was confused about whether and which discussions took place at lot 366 or at house 24. He said he told the first plaintiff of the changes on one occasion, but discussed them again during construction after November 1991 on different occasions. It was pointed out to him that in his statement he said that he mentioned two occasions when he discussed the changes with the first plaintiff, at lot 366 and at house 24. He had said in this statement that it was at house 24 that the first plaintiff asked for the folding shutter in place of the french windows, but in evidence said that this took place at lot 366. His statement said the notification was while the house was under construction, but in evidence he said that it was before construction commenced.

38. The first defendant said that he instructed that a reply be written to the letter of 10 October 1991, but in his statement he said that he did not see any point in responding. He said he did not remember that; he told his lawyer to reply.

Assessment of the Evidence

39. Neither the first plaintiff nor the first defendant impressed me greatly as witnesses. They gave evidence through an interpreter so I was not able to assess their credibility from the manner in which they gave their evidence. Nor, from the intrinsic value of what they said alone, could I find the facts, where there was conflict, on the basis of the reliability of one over the other. I am inclined to think that the first defendant's version of the facts hung together rather better, but, without the probabilities and considering the contemporary documents, I could not find in his favour . This being so, I must use the tools of the probabilities and those contemporary documents to aid me in drawing my conclusions on the issues.

40. The plaintiffs seek to escape liability to implement the exchange agreement on the basis of the fact that house 24 was not constructed as it was agreed it would be. In order to determine if this is so, it is necessary, in the first place, to find what was said between the first plaintiff and the first defendant in this context.

41. I have already recited the different versions as to this. Which is the more probable, and which is supported by the contemporary documents?

42. House 24 was built, figuratively speaking, right under the first plaintiff's nose. He does not dispute that he had ample opportunity to see what features were and were not being incorporated into the house. From an early stage, it must have been obvious to him that, for example, the house would not have balconies and that the main entrance to the ground floor was a large opening much more consistent with a shop front than for a conventional house door. In my view, it is improbable in the extreme that, if the first plaintiff had expected that house 24 would have balconies and a conventional door opening, he would not draw attention to the departure and complain about it. It is also most improbable that, if the first plaintiff had not requested a shop front opening, the first defendant would build the house making provision for one. Why on earth would any builder do that?

43. Why did the first plaintiff not complain? He gives two reasons for this; one rather more emphatically than the other. The first reason he gives is, to paraphrase, that he had already had a disagreement with the first defendant and feared that a complaint to him would not be well received. This, of course, is a totally inadequate and unbelievable explanation. If it were so that the first plaintiff was apprehensive as to the reception he might get in a face-to-face encounter, there were other means by which he could express his dissatisfaction; in particular, he could very easily have instructed his solicitors to write a letter. He had, of course, already used solicitors in connection with the exchange agreement. In any event, it is clear that the first plaintiff did not have any reluctance to complain when it seemed to him to be justified; he did so in connection with the delay and, much later, regarding what he says were the unauthorised changes.

44. The other reason seemed to me to be an afterthought. He says that the agreement was already cancelled, so the way the house was built did not matter to him. I do not believe that he thought the agreement had already been cancelled. It is true that, on 10 October 1991, his solicitor wrote calling upon the defendants to complete and deliver house 24 within 14 days, failing which the agreement would be treated as rescinded, but no one, including the first plaintiff himself and his legal advisers, treated this seriously. The plaintiffs did nothing following this letter until 11 August 1992, when his solicitor wrote to the defendants asking if they were willing vacate the registration of the agreement or enter into a cancellation agreement. The first defendant's solicitor responded to this letter on 22 August 1992, denying that the agreement had been rescinded, and saying that the first defendant intended to proceed with the exchange. Numerous letter by the first defendant's solicitor followed showing every intention to complete, and pressing the plaintiffs to do so. There was no response from the plaintiffs' solicitor until 8 December 1992. In a letter of this date, the plaintiffs' solicitor makes no reference at all to the earlier suggestion that the agreement had been rescinded. Instead, for the first time, the allegation is made that house 24 had not been constructed according to the agreement, and says that the plaintiffs are not bound for this reason. Incidentally, but importantly, this letter makes no mention at all of what the first plaintiff says was an oral agreement regarding the mosaic tiles, the shady glass and the green transparent tiles. The suggestion that the agreement was rescinded by reason of the delay was not taken seriously in this trial either. Although the plaintiffs' pleadings mention the delay, no allegation is made that the plaintiffs did, or were entitled to, cancel the agreement for this reason. I find that this explanation advanced by the first plaintiff for failing to complain is not credible.

45. If the reasons advanced by the first plaintiff for not complaining cannot be accepted, there must have been some other reason. It is, by far, much more probable that the first plaintiff did not complain about the way in which the house was being and had been built because he knew he had nothing to complain about, and he knew he had nothing to complain about because what was done was done with his agreement or approval. It follows that what the first defendant says about his discussions with the first plaintiff regarding the way in which the house would be built is much more probable that the first plaintiff's version. I accept the first defendant's version. This means that I do not accept that there was an agreement regarding mosaic tiles, shady glass or green transparent tiles.

The Law

46. Even if I am wrong in this respect, and I should not accept the first defendant's version of the discussions, it remains a fact, on the first plaintiff's own evidence, that the first plaintiff, by his conduct in watching the house being built in the way in which it was being built, without doing anything to indicate to the defendants that was what was being done did not meet with his approval, and not having any acceptable explanation for failing to do so, must have led the defendants to believe that the manner in which they were performing the contract was in order, and induced them to complete the building accordingly. This conduct by the first plaintiff is unambiguous. In that situation, the plaintiffs cannot be heard to say that they now wish to enforce their rights strictly. Lord Denning MR, in WJ Alan & Co v El Nasr Export [1972] 1 QB 189, at 213A, put this better -

"If one party, by his conduct, leads another to believe that the strict rights arising under the contract will not be insisted upon, intending that the other should act on that belief, and does act on it, then the first party will not afterwards be allowed to insist on the strict legal rights when it would be inequitable for him to do so. . ."

47. In De Busche v Alt (1978) 8 Ch. D 286, a case dealing with principal and agent, Thesiger L.J, delivering the judgment of the Court of Appeal, said, at page 314 -

"It still remains to be considered whether, short of such ratification or adoption, the Plaintiff can be held by his conduct in any way precluded himself from taking the present proceedings. . . . If a person having a right, and seeing another person about to commit, or in the course of committing an act infringing upon that right, stands by in such a manner as really to induce the person committing the act, and who might otherwise have abstained from it, to believe he assents to its being committed, he cannot afterwards be heard to complain of the act. This . . . is the proper sense of the term "acquiescence" and in that sense may be defined as quiescence under such circumstances as that assent may be inferred from it, and is no more than an instance of the law of estoppel by words or conduct."

48. If the first defendant's version of what happened is accepted; that is, that the first plaintiff expressly indicated his acceptance of the changes, it would be very strange if the defendants were to be in a worse position. If the first plaintiff merely stood by and knowingly allowed the defendants to act to their detriment in the belief that they were doing the right thing, he is to be taken to have waived the plaintiffs' right, if it existed, to insist on the balconies and other features, however one chooses to express this in terms of a particular legal niche. If, however, the first plaintiff, in effect, told the first defendant that the way in which the defendants proposed to build the house was acceptable, it might be argued that this constituted a variation of the exchange agreement, and, because that agreement was required by law to be in writing, the variation was ineffective. So, on this thesis, if the first plaintiff stood beside the defendants as they erected the relevant wall of the building without balconies, but said nothing, he could not afterwards complain, but if, as the defendants were building the wall, the first defendant said to the first plaintiff - "Is it acceptable to built this wall without balconies?" and the first plaintiff replied - "Yes", the plaintiffs could insist on their alleged right to have the wall built with balconies because this agreement was a purported ineffective variation of an agreement required by law to be in writing. If the law has any conscience at all, this cannot be so.

49. For a judge to attempt to fit this sort of informal conversation between non-lawyers into the category of a variation, on the one hand, or a waiver, on the other, is totally artificial. If a bystander, hearing the conversation mentioned above, were to ask the first plaintiff or the first defendant if there had been a variation or a waiver, I suggest the answer would have been given with some impatience - "What does it matter? We agree the house is to have no balconies.". It seems to me that, in this situation, it is not possible or necessary to fit what happened between the parties into a particular legal category. If what was agreed was ineffective as a variation of the original contract because of some legal technicality, that does not mean that this is the end of the matter; it may be effective otherwise to prevent the plaintiffs from going back on their word - in this case, if one wishes to categorise it, by finding that the plaintiffs waived their rights, if they existed. I do so find.

Conclusion on the Plaintiffs' Claim

50. I conclude that, on the basis that the plaintiffs waived their rights, they are not entitled to the relief claimed. Accordingly, their claim is dismissed.

The Counterclaim

51. The defendants have counterclaimed in this action. They do so because of a difficulty arising out of the exchange agreement. This provided for completion should be the twenty-first day from the date of issue of the occupation permit for house 24. The defendants say this clause was agreed because the parties were mistaken as the occupation permit. In fact, the property is one in respect of which occupation permits are not issued. The plaintiffs do not admit this, but it was established by unchallenged evidence, and no serious argument was addressed to me by the plaintiffs against the proposition. I am asked to rectify the agreement to provide that completion should be within a reasonable time of the completion of house 24. I have no doubt that, if the parties had been aware that no occupation permit could be issued in respect of the house, they would have agreed that completion should be within a reasonable time of completion of the house. Indeed, the evidence of the first plaintiff supports this. Accordingly, I grant the rectification.

52. The defendants ask for specific performance of the agreement. In the absence of good reason, the courts will grant specific performance of contracts relating to the conveyance of land. No good reason against this has been advanced in this case. Accordingly, I grant a decree of specific performance of the agreement as rectified.

53. The defendants also advance a claim for damages in respect of the plaintiffs failure to implement the exchange agreement. This is based on a scheme by a property developer that envisaged a land exchange or a cash payment of $2 million. There undoubtedly was such a scheme; both parties knew about it. But I do not see how I can decide on the material before me what loss the defendants have suffered by being deprived of lots 133 and 240 for a period of time. It is clearly not $2 million because this does not take account of the present value of lots 133 and 240, and there is no reliable evidence of what it is. I believe Mr Pow recognised this. In closing, he did not suggest that I should award damages in addition to specific performance. It seems to me that the defendants have not proved any damage, and their claim in this respect is dismissed.

The Costs

54. The defendants have been successful in this action. There seems no reason why costs should not follow the event. Accordingly, I make an order nisi that the plaintiffs pay the defendants' costs on the claim and counterclaim.

Representation:

Mr Earnest Cheung, instructed by Messrs Simon CW Yung & Wong, for the plaintiffs.

Mr Jason Pow, instructed by Messrs Hui & Lam, for the first defendant.

Me Peter Cheuk, instructed by Messrs Sin, Wong & Mui, for the second and third defendants.