Mariner International Hotels Ltd v. Atlas Ltd and Another
Read the full judgment text of CACV 291/2004 on BabelCite. This Court of Appeal judgment was delivered on 2 August 2004.
1. Save where it is necessary to be more specific I shall, throughout this judgment, refer to the plaintiff as either "Sino" (Sino Land Company Limited) or "the plaintiff" and the defendant as either "Hang Lung" (Hang Lung Group Limited) or "the defendant". In December 1996 Sino agreed to purchase a hotel (which I shall refer to throughout as either "the Bay Bridge", its present name, or "the Hotel") which was at that time being constructed. The completion date for the sale and purchase agreemen
Cites 2 cases
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HCA010714C/1998 HCA10714, 10752 & 10821/1998 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF FIRST INSTANCE ACTION NOS.10714, 10752 AND 10821 OF 1998 ----------------------------
---------------------------- AND BETWEEN
---------------------------- (Consolidated by Order of Master Lok dated 10 November 1998)
Coram: Hon Burrell J in Court
Date of Judgment: 2 August 2004 ------------------------- JUDGMENT ------------------------- 1.Save where it is necessary to be more specific I shall, throughout this judgment, refer to the plaintiff as either "Sino" (Sino Land Company Limited) or "the plaintiff" and the defendant as either "Hang Lung" (Hang Lung Group Limited) or "the defendant". In December 1996 Sino agreed to purchase a hotel (which I shall refer to throughout as either "the Bay Bridge", its present name, or "the Hotel") which was at that time being constructed. The completion date for the sale and purchase agreement was set for 30 June 1998 at which time it was anticipated that the Hotel would be built and Sino would, as the new owners, run it as a hotel. The purchase price was $HK1,070,000,000 ($1.07 billion). 2.On the morning of 30 June 1998 Sino did not complete the transaction. They alleged that Hang Lung were in repudiatory breach of the agreement. Hang Lung made the same allegation against Sino. This judgment is confined to the issue of which party repudiated the contract. About half way through the trial the court readily acceded to a joint application that liability only would be tried. This reduced the size of the litigation from monstrous down to very substantial. 3.Before embarking on a consideration of the many issues, the size and difficulty of the litigation merits brief comment. From 30 June 1998 this matter has been hotly contested. Hang Lung submit that Sino failed to complete because it had become, due to the property crash of 1997/1998 a very bad deal for them. At the time of completion the property they had agreed to buy was worth about half what they had agreed to pay for it. However, Sino correctly say, and Hang Lung do not disagree, that motive is not an issue. They correctly say that if for any one of three major reasons they were entitled in law to walk away from the contract, the fact that they were walking away from a thoroughly bad deal (for them) is neither here nor there. 4.Sino's decision not to complete sparked off what has become a substantial piece of litigation. The parties themselves are two of the biggest players on the property scene in Hong Kong. Their solicitors, Messrs Deacons for Sino and Messrs Johnson Stokes & Masters ("JSM") for Hang Lung are two of the biggest and most respected firms in Hong Kong. Sino have been expertly represented by Mr John Blackburn QC leading Mr Danny Choi and Mr Ronny Tong QC, SC leading Miss Yvonne Cheng, and Hang Lung have been expertly represented by Mr Neville Thomas QC, Mr Edward Chan QC, SC and Mr Anderson Chow SC. Up to 16 lawyers have been in court on each of the 64 days of the trial. One or two more figures will suffice to describe the size of the litigation. Seventeen experts have given evidence, their reports take up 22 of the 94 arch files of documents. The pleadings are 268 pages and the final written submissions over 500 pages which were expeditiously delivered orally over a period of eight days. 5.It is not surprising that from such litigation have emerged many issues which are genuinely difficult. Had they been less difficult they may have been resolved. In fact the parties, on almost all issues are poles apart, seriously at odds with each other. The experts, nine for Sino and eight for Hang Lung, have done their best to produce joint memoranda setting out what they agree on. Sadly the joint memoranda are slim in comparison to the matters about which they disagree. The expert evidence is either black or white; there is very little grey. In the final submissions the same language is used by both sides. One says the other is "plainly wrong"; opponents' submissions are "wholly misconceived" or "not understood". Both say there is "no answer" to this and "must succeed" on that. One particular point was described as "horrendously bad" by one side and "legally sound" by the other. 6.The range of issues which now fall for determination by this court is also daunting. They include very technical evidence from very impressive structural engineers concerning the structural integrity of the roof (an issue which took up almost three weeks in court, on its own), accountancy law and practice in Hong Kong, interpretation of British Virgin Islands law, numerous construction issues including fire safety, the quality of hotel rooms and lobbies, workmanship, the functionality of the hotel, unauthorized building works, what the terms of the contract mean, and many more. It is undeniable that a panel of three arbitrators from different professional backgrounds (a lawyer, an engineer and a quantity surveyor) would have been a better equipped tribunal. 7.The judgment which follows will be divided into five sections. In the preliminary section I will set out some of the uncontroversial background which led to the dispute. I will list and abbreviate the main players and will highlight some of the key dates in chronological order. It will then be apparent that three main issues (Sections B, C and D) require a decision. They are entirely discrete issues. If Sino succeed on any one of these three issues it will be Hang Lung who was the party in repudiatory breach. Put in very broad terms (because each of the three main issues have many sub-issues) they are : (B) on 30 June 1998 had the Hotel been built to the proper standard; (C) on 30 June 1998 did the vendor show and have good title to the property; (D) the accounting issue concerning the method by which the Hotel was to be purchased. Section E is less important, it deals with complaints about inspection and disclosure. SECTION A ― BACKGROUND (i) An outline of pre-contract events 8.Atlas Limited ("Atlas") was the company within the Hang Lung group which was responsible for building the Hotel. Mariner International Hotels Limited ("Mariner") was the company within the Sino group which was to buy the Hotel. Sino and Hang Lung are the guarantors of Mariner and Atlas. The machinery for the purchase was an agreement to purchase (a) the issued share capital of Crest Incorporated ("Crest") of which Ocean Time Investments ("Ocean") was a wholly owned subsidiary and (b) a loan provided by Atlas to Ocean and/or Crest. In substance it was agreement by Mariner to acquire the Hotel owned by Ocean. 9.In mid-1996 Hang Lung was in the course of building a 438-room hotel. The original plans had been for a 300-room hotel but prior to it being marketed for sale permission had been given to increase the number of guest rooms. In July 1997 it was advertised for sale as a "proposed turnkey hotel project" to be a "438 room hotel development". Sino became interested in buying it. In the course of pre-contract discussions it was agreed that the use of 3 or 4 or 5 "stars" to describe the standard of the finished hotel would not be used. Rather, a "benchmark" hotel would be identified which would serve as a guide as to what standard the hotel would be built to. The benchmark hotel suggested by Mr Nelson Yuen of Hang Lung was the Grand Plaza Hotel ("GPH") at Kornhill which was a hotel under Hang Lung's ownership and management. 10.Mr Robert Ng of Sino visited the GPH twice before the agreement was signed on 19 December 1996. His first visit was a private visit made without anyone from Hang Lung. The second visit was with Hang Lung representatives. He inspected a very small number of rooms (which were in fact in the service apartment section of the GPH) and some of the public areas. He was clearly satisfied with what he saw because the agreement was drawn up and signed the next day. 11.The circumstances of Mr Ng's visits to the GPH are not of great significance. It is the terms of the contract itself which are crucial (and which will be considered at the beginning of Section B of this judgment). It is worthy of comment however that neither of Mr Ng's visits seemed to have lasted more than 15-20 minutes. They were certainly cursory in nature. Two things can be said from this. Firstly, at the material time the property market in Hong Kong was on the rise with increasing momentum. Sino already owned or managed five hotels in Hong Kong and one in Singapore, all of a good standard. They were intent on making a further acquisition. Secondly, Mr Ng made the decisions at Sino. Once made, the responsibility of seeing the project through fell to his many assistants in many different departments. He said in evidence that he had a lot of executives to whom he delegated things but added that he tried to be "quite hands-on on certain things". In this case, after his decision to purchase, it is his executives and lawyers who take centre stage. His next significant appearance is a few days before completion when he personally delivered a letter setting out Sino's "concerns" to the Director of the Hong Kong Buildings Department. His role in December 1996 and June 1998 lead me to conclude that the movements of the property market would be uppermost in his mind at all times and I find it hard to accept his evidence that in so far as this acquisition was concerned the plummeting market "did not matter" as it was to be a long term investment. I repeat however, that motive is irrelevant. The simple analysis is that if Sino win it will be because Hang Lung failed to deliver under the contract in one or more ways; if Hang Lung win it will be because Sino failed to lawfully extract themselves from what had become a bad deal commercially. (ii) Who's who 12.The parties to the action have already been mentioned. The contractors, sub-contractors and other companies which play important roles are :
13.In additional to those people already mentioned some of the remaining key witnesses as to fact were :
The above is not a complete list of the witnesses as to fact. I will introduce the 17 expert witnesses separately under each of the following main issues B, C and D. (iii) Key Dates
SECTION B 15.Under this heading I deal with what were described in the trial as the "Group I issues". Extracts from the pleadings which cover these issues are as follows : 16.In the Statement of Claim (as amended) :
17.Under the heading "Breach of Implied Terms" :
18.Schedule A sets out two pages of allegations in which the lobby of the Hotel failed to meet the benchmark set by the GPH (19 allegations). 19.Schedule B sets out six pages of allegations in which the Hotel guest rooms were similarly deficient (50 allegations). 20.Schedule C set out two pages (16 allegations) relating to "all other parts" of the Hotel. 21.Schedule D lists 31 allegations over three pages of breach of paragraph 31(b) of the Statement of Claim. 22.Schedule E contains 32 alleged breaches of paragraph 31(c). 23.In the Defence (as amended) :
24.Schedules I to V inclusive answer the allegations in Schedules A to E respectively, over a total of 27 pages. 25.The Reply states :
26.Schedules (a) to (e) in the Reply follow the same pattern and respond to Schedules I to V in the Defence, over a total of 42 pages. 27.It is important to note at this point that Sino contend that there is a crucial difference between the certificates of practical completion for the main contract (between Hang Lung and Hien Lee) and the fit-out contract (between Hang Lung and Martin) on the one hand, and the practical completion of the Hotel for the purposes of the sale and purchase agreement between Sino and Hang Lung. Sino also contend that the certificates of practical completion issued by CAL to Hien Lee and Martin should never have been issued and should be re-opened and reviewed by the court. EXPRESS TERMS 28.Important questions of interpretation of the contract arise in this issue. It is necessary therefore to set out some of the more important terms. 29.Section 2.01(b) is in the following terms :
30."Completion" is defined as :
31.Clause 5.01 commences :
32."Conditions" are defined as :
33."The hotel" is defined as :
34.The "Approved Plan" is defined as :
35.By clause 13 time is expressly stated to be of the essence. 36.Clause 2.01(b) places two primary obligations on the vendor. First, to procure practical completion of the Hotel in order for it to commence business on or immediately after Completion. Secondly, to obtain the necessary permits and licences in order for the Hotel to commence business on or immediately after Completion. The Completion in the last line (with a capital 'C') is the completion of the sale and purchase agreement. The completion in the first line (with a small 'c') is the practical completion of the building contracts. 37.They are separate obligations but contrary to Hang Lung's submission it is not the second obligation only which has to be fulfilled so that the Hotel can commence business, it is both of them. It is obvious that a hotel cannot commence business until there has been practical completion of the building contracts. In that sense the 'practical completion' of the Hotel was another document in the same sense as a permit or a licence. 38.The first obligation "to procure practical completion" is followed by two further free standing obligations. First, that the Hotel is furnished and decorated and has all the necessary fixtures and fittings. Secondly, that the furniture, fixtures, fittings and decoration in the guest rooms and lobby shall be equivalent to the standard and quality of the finishes of the GPH. 39.It is a clumsy clause but it is obvious how and why it came about. Mr Robert Ng had seen a couple of the renovated GPH rooms and its lobby and Hang Lung agreed to provide an equivalent standard at the Bay Bridge. 40.In my judgment, once Hang Lung had received the certificates of practical completion under the main contract and Martin's fit-out contract, they had "procured the practical completion of the Hotel". In addition, it was expressly stated that "in order for the Hotel to commence business on or immediately after Completion", the "Hotel" would contain "furniture, fixtures... etc" of "an equivalent standard ... etc". 41.The absence of the architect's certificates of practical completion precludes any possibility of Completion of the sale and purchase agreement. However, that is not the position here. They were issued in good faith on 27 June 1998. The vendor has therefore complied with its obligation to procure practical completion. What remains, subject to the power of the court to re-open and review them, is to decide whether (a) the equivalence obligation had been fulfilled as at 30 June 1998 and (b) whether the Hotel was able to commence business on or immediately after 30 June 1998. 42.Support for this approach is found in Global Time Investments Ltd v. Super Keen Investments Ltd [2001] 1 HKLRD at p.390, per Lord Hoffmann NPJ :
43.Mr Blackburn for Sino submits that the contract under consideration in the Global Time case was quite different from the one in our case and thus the decision is not on all fours. In part, I agree but it is far from legless either. It provides the approach of how to deal with a situation when a building contract concept has been incorporated into a sale and purchase agreement. 44.Many questions are posed as a result of the unsatisfactory drafting of Clause 2.01(b). I have no doubt however that considerable thought went into it. The evidence shows that there were earlier variations which contain different emphases. However, we are concerned with the final draft only. My consideration of the voluminous evidence will be on the following interpretation of Clause 2.01(b) :
45.The clause permits the vendor to procure the certificates of practical completion at the 11th hour, just prior to Completion of the sale and purchase agreement. Any purchaser would know that, in a large building contract, a lengthy and detailed defects liability period would follow the issuance of the architect's certificates. Therefore, the issue which arises as a result of the last two lines in Clause 2.01(b) is whether or not the amount of work still to be done, the number of defects still to be attended to, the poor workmanship needing rectification and so on, was such that, in spite of the fact that the two practical completion certificates had been issued in good faith and in spite of the fact that the hotel licenses, etc., had been obtained, the Hotel could not operate as a hotel at the time of Completion. Put more simply, how bad was it? Did its condition on 30 June amount to a repudiatory breach by Hang Lung? It is straightforward to decide whether or not the primary obligations in Clause 2.01(b) had been breached or not. The primary obligations are to acquire pieces of paper, namely certificates of practical completion and hotel licences. Either they had them or they did not. Failure to have them by 30 June 1998 or by a reasonable time thereafter would be a repudiation of the contract. In other words, if Hang Lung had built a hotel which fell short of the requirements necessary for the issuance of practical completion certificates or hotel licences, Sino would be under no obligation to complete. 46.More difficult, is to decide the remaining question, posed above. In this context, a reminder of what constitutes a repudiatory breach is useful. Of the hundreds of cases in which this fundamental concept is discussed, I select only the following. In Wallis Son & Wells v. Pratt & Haynes [1910] 2 KB at p.1012, Fletcher Moulton LJ said :
47.Did the condition of the Hotel on 30 June 1998 amount to a "substantial failure to perform the contract at all" or was Sino's remedy in damages? IMPLIED TERMS 48.The pleaded implied terms relied on by Sino, relating to this issue (Section B of this judgment) are as follows :
49.In other words, it is claimed that the provision of furniture, etc., to a certain standard applied not only to the guest rooms and lobby but to all other parts of the Hotel as well. Also, equipment, services and amenities would be those "commonly expected" for a hotel of such a standard (the Clause 2.01(b) standard). Similarly, the electrical, mechanical and plumbing installations would meet the same standard (and also would "comply with industry or regulatory standards" per answers to request for further and better particulars). Finally, it was implied that Hang Lung were obliged to amend the approved plans where necessary to achieve these ends. 50.For a term to be implied, the following conditions must be satisfied :
(BP Refinery (Westernport) Pty Ltd v. Hastings City Council [1977] 16 ALR 363.) 51.Two key questions arise. First, did the "benchmark" provision concerning the standards of the GPH apply to the whole Hotel (implied term) or only to guest rooms and lobby (express term)? Secondly, what sort of hotel was envisaged (and therefore had to be built by Hang Lung) by the definition of "Hotel" in the agreement? 52.On the first question, I refer back to the decision of Yuen J (as she then was) when she dealt with an application by Sino, prior to Completion, for a direction as to their entitlement as to inspection of the Hotel. 53.After setting out Clause 2.01(b) she went on to say (the original intended name for the Hotel was the "Golden Bridge") :
54.As a starting point I agree with these remarks. The benchmark provision is expressly confined to the guest rooms and lobby only. The parties could have expressly widened it had they wanted to. They did not. In my judgment it does not follow that because a measuring standard had been adopted for the guest rooms and lobby, precisely the same measuring standard must be applied to all other parts, including staff canteens, swimming pool, kitchens, conference rooms and so on. It goes without saying that a reasonable standard was to be achieved. However, it was not to be measured by the GPH benchmark. It is not necessary to imply the particular term relied on because it is not necessary for the contract to be effective. Mr Thomas for Hang Lung accepts that the "other areas" would naturally have to be built to a standard implied by the more usual and general implied terms that are familiar in such contracts. The plaintiff however is not permitted to simply convert the express term for the guest rooms and lobby, wholesale, into an implied term for everywhere else. The express term is workable within the confines of the rooms and lobby. Making a comparison to decide whether equivalence has been achieved is a manageable albeit lengthy task. However, embarking on an exercise to compare the standards, by way of "equivalent finishes" for back of house equipment, service amenities, electrical, mechanical and plumbing installations is unrealistic, unmanageable and was not envisaged. 55.In arguing for the implied term, Sino submitted that the officious bystander would assume that the standard of the entire Hotel would be the same as the standard of the guest rooms and lobby. It was argued that one could not expect four stars for the rooms and two stars for the rest of the Hotel. I do not think the argument stands up. Gauging standards by "stars" was expressly rejected in this contract. The point is that the standard of the "other areas" is not to be measured against the facilities at the GPH. They stand to be assessed in their own right. When examining the standard and quality of what was provided by Hang Lung in the other areas, two questions need to be addressed. First, were the services, amenities, electrical, mechanical and plumbing installations etc. those which Hang Lung were contractually obliged to provide? Secondly, to what standard of workmanship had they been installed? When answering these questions, consideration of what is at the GPH is irrelevant. In answering these questions the issue of whether or not Hang Lung were in breach, and if so the nature of the breach, will be determined. Were the breaches in the other areas of sufficient gravity to constitute a repudiatory breach? 56.The answer to the first question above, is largely a question of law; the second, almost entirely a question of fact. 57.Fundamental to Sino's case is that Hang Lung failed to deliver a "Hotel". Sino's case is that it was to be a fully functional full-service hotel. They submit that what they got was, at worst, a block of serviced apartments. In my judgment, as a matter of construction, this submission has not been made out for the following reasons :
58.I now proceed to matters of detail. A summary of the context in which the detail in Schedules A-E will be considered is :
SCHEDULES A AND B, THE GUEST ROOMS AND LOBBY Meaning of equivalence 59.The working definition advanced by Mr Blackburn for Sino is "equivalence requires the application of known objective criteria of durability, functionality and comparative cost. It was not the intention of the parties that observable imperfections in the Grand Plaza should be weighed in the balance". 60.Mr Thomas warns about the language of comparison. The use of words such as "reasonable", "good", "adequate", etc. when describing carpets, wallpaper, curtains, taps, doors and all the other items considered is necessarily and dangerously subjective. One expert will say an item is not good enough, the other disagrees. It is a very difficult and inexact task. Sino's leading expert, Mr Frederick Loader was criticised, for example, for describing most of the individual items as "reasonable" (in his inspection of the GPH) but when giving his final conclusion of the GPH all the "reasonables" had somehow become an overall "very good". 61.I agree with Mr Blackburn's definition as a starting point. Durability, functionality and cost (to which I would add "value for money") are recognised criteria for discerning "equivalence" on an item by item approach. What is also important is overall impression. Mr Robert Ng inspected rooms at the GPH, he liked what he saw and he wanted his rooms at the Hotel to give a similar impression. This would be achieved by using equivalent materials. Neither side suggests that identical materials should have been used. The ultimate test must be, would the expert eye (after careful scrutiny) say, having inspected rooms at the Hotel and rooms at the GPH and having inspected the lobby of both hotels, "Yes, the furniture, fixtures, fittings and decoration at these two hotels are of a similar standard." 62.I also agree with Mr Blackburn that imperfections at the GPH cannot be weighed in the balance. That means that one scratched tile or one torn curtain at the GPH does not permit one scratch or tear at the Hotel as excusable. However, in other respects a balancing exercise is permissible. For example cheaper, albeit adequate or reasonable, guest room chairs at the Hotel (and therefore not strictly equivalent) may be cancelled out by a similar item at the Hotel which is regarded as slightly superior to its counterpart at the GPH. 63.Durability, functionality and cost are the criteria for the test of equivalence for the materials used. However a significant number of the complaints listed by Mr Loader refer to workmanship, not materials. He said the materials themselves may be equivalent but it is "the way in which they are applied and finished that enable comment on whether the finished product has quality or not". In evidence he said :
64.The distinction between workmanship complaints and materials complaints is important. The cost and durability issue is relevant to the latter, the defects issue is relevant to the former. In Schedules A and B, approximately one third are complaints about defective workmanship. EXPERT EVIDENCE 65.The unusually large number of experts in this case has already been referred to. On the this issue alone six were called. Three from each side. 66.The plaintiff's evidence was from Mr Loader, Mr Richard Agon and Mr Frankie Ho. It is contained in three arch files and covered five days in court. The defence called Mr David Tuffin, Mr Glenn Cornelia and Mr Jeffrey Gosnell. It is contained in two arch files and took a further five days in court. A further arch file contains all their supplementary reports. 67.The expertise of the witnesses was not in doubt. Each produced as part of their reports an impressive CV with long lists of qualifications, publications and so on. It would be pointless to set them out here. Counsel did however, frequently, criticise their objectivity and conclusions. Mr Blackburn criticised the defendant's experts for not being adequately informed about the condition of the Hotel in July 1998, thus diluting the value of their opinions given at the time of their inspections two or more years later. Mr Thomas criticised Mr Loader for not keeping any records of his inspection of the GPH thus diluting the value of his opinion on equivalence. Mr Thomas also noted that he was quick to criticise the deficiencies in the Hotel without balancing them against the respects in which the Hotel was superior to the GPH. A Hang Lung witness as to fact, Mr William Ko, had listed in his witness statement 111 examples of superior items at the Hotel compared with the GPH (he was not an expert witness but had considerable experience in the hotel business). Mr Thomas also answered, with some force, the criticism levelled against the defendant's experts as follows :
68.As already mentioned in the vast majority of instances the opposing experts, quite simply, gave opposite opinions. It is disappointing if truly objective experts come to directly opposite conclusions. I found it less easy than counsel to criticise the experts. Their reports and their evidence were all impressive. They were the result of a huge amount of work. Each gave their evidence in a measured and professional way. The fact that there has to be a winner and a loser in this litigation does not diminish my appreciation of their attempts to assist the court. EACH PARTY'S CASE ON OBLIGATIONS AS TO QUALITY Sino 69.Sino contend that Hang Lung was trying to hold them to an agreement which they had not fully performed. Mr Blackburn submits that the fall in the property market (which is a cloud in the background albeit irrelevant to the specific issues) cuts both ways. Hang Lung would have been as anxious to complete as Sino were not to. Sino however, say that from the very outset, in 1996, Hang Lung's approach was bound to result in an inferior hotel. They point to the following matters in support of this contention.
Sino therefore portray a cheese-paring, cost-cutting attitude from the very beginning. Hang Lung 70.As to the fit out costs Hang Lung submit that a comparison of the figures is not helpful. On a room by room basis the GPH was higher, whereas on a square foot by square foot basis the cost at the GPH was $125 and the cost at the Hotel was $147. More importantly, other differences render the comparison unhelpful. The scope of works was different, the number of rooms was different (150 compared with 438) and there is a difference between fitting out a new room and renovating an old one. 71.The main thrust of Hang Lung's defence is that since June 1998 no stone has been left unturned in the search for faults. The result is a list of complaints which contains many trivial matters and which could not, even taken cumulatively, constitute a repudiatory breach. In Mr Thomas' words "the comprehensive nature of the assault betrays its legitimacy". 72.As to the defects lists, the evidence shows that CAL issued two architect's instructions ("AIs") to Hien Lee prior to 27 June 1998 (AI 303 was on 16 June 1998 and AI 305 on 22 June 1998. They include many hundreds of pages of defects to be rectified). There is evidence that Hien Lee reported that it had complied with instruction AI 303 by 20 June. There is evidence that substantial progress had been made with AI 305. (It is acknowledged that Sino dispute this.) 73.CAL also issued two architect's instructions to Martin (AI 26 on 6 June and AI 27 on 22 June). The evidence follows a similar pattern. In respect of the former Martin recorded their compliance on 25 June. 74.Hang Lung do not claim everything had been done satisfactorily. They go further and accept that everything had not been done satisfactorily. They make four points. Firstly, it is difficult to ascertain what, in truth, had and had not been done and to what standard. Secondly, whatever remained could not amount to a repudiatory breach. Thirdly, what remained after 30 June 1998 was small by comparison with what was contained in the pre-completion AIs and fourthly, and most significantly, whatever remained post-30 June had not prevented Nelson Chow of CAL issuing the certificates of practical completion on 27 June. It is not suggested that Hien Lee's and Martin's letters claiming substantial rectification work having been done were accepted by CAL dishonestly or that the certificate of practical completion were issued without good faith. 75.As to the third point above, Hien Lee dealt with two defects lists in late 1998 totalling 18 pages. In July 1999 they received 10 lists all between one and five pages long. Similarly with Martin, eight lists were served in July 1999 all one to five pages long. Two points are made. Firstly, Hien Lee and Martin would only be required to rectify poor workmanship in these lists. They do not help, therefore, with the complaints relating to the equivalence of materials. The general nature of complaints in the 1999 lists is similar to the nature of the complaints in the very long June 1998 lists. What has changed is the number of complaints. On my view therefore a substantial proportion of the defects were rectified before 30 June 1998. A brief inspection of the 1999 lists also supports the contention that the outstanding defects (which, it is argued, would have been substantially the same as those outstanding in June 1998) were towards the minor end of the scale. 76.As to water leakage, Hang Lung do not pretend there was none. They contend, the only issue in relation to it was whether it was apparent at the time of practical completion and whether it was rectified. 77.In conclusion, Hang Lung make the point that two-thirds of the complaints in Schedules A and B relate to materials, whereas the main thrust of Mr Loader's report was a criticism of "The way in which the materials were applied and finished...". THE INDIVIDUAL COMPLAINTS IN SCHEDULES A AND B 78.Having made the finding that there was no obligation on Hang Lung to amend the plans to build Sino's concept of a full service hotel with all the necessary back of house facilities etc., which were not on the original approved plans, the complaints which are based on the design of the Hotel, rather than the lack of equivalence in materials or poor workmanship fall away. 79.The key expert witnesses are Mr Loader for Sino and Mr Cornelia for Hang Lung. I have considered and compared their reports and their evidence. For each item I have made a decision. I have indicated my decision by a letter A, B, C, D or E which mean :
80.Findings of A and B are in Hang Lung's favour. D and E are in Sino's favour. C findings should be put to one side to see how voluminous they are at the end of the day. On certain items I enlarge on my reasons. SCHEDULE A COMPLAINTS
In so far as this complaint relates to furniture and fixtures it is D. They should have been provided. In other respects, such as storage areas, it is A.
This is largely a design argument and therefore A. The height of the counter however could have been nearer to equivalence. In fact, the GPH was 800 mm and the Hotel 750 mm. The height issue is therefore a C.
Taken together 11-13 deal with materials used for desks, counters, floors and walls in the lobby. This is an appropriate moment to record the fact that, at the parties' request, I have viewed both hotels (in late 2002 and early 2003). What I saw helps me evaluate the experts' evidence when it is in conflict. Obviously, in so far as we are considering materials there had been no change between June 1998 and the dates when the defendant's experts and the court inspected the premises. 84.Speaking very generally, any notion that the overall impression of the Hotel lobby was shoddy, pokey or disappointing should be dispelled. In fact, it won an Interior Design Award in 1999 (the details of which do not matter because little reliance is placed on it). The award does indicate however that no-one would walk into the lobby and feel they were in third rate surroundings. Far from it. 85.The language used in the preceding paragraph is very general. The exercise before the court is much more detailed and particular. As to the desks I accept Mr Cornelia's evidence. They were stylish, appropriate for the particular hotel design and sufficiently durable to survive until a lobby refurbishment was carried out. The GPH desks were more solid. That is all. 86.The fact that the Hotel had veneered walls and the GPH had marble walls and the fact that the marble used on the Hotel floor was about half the price of the GPH marble took up some time in evidence. Sino submit that the cheaper materials were used because of budgetary constraints. I do not think this is the whole answer. I accept that the use of veneered walls and the particular marble chosen was dictated as much by contemporary design considerations as by cost. The marble around the reception area in the GPH was black and austere - a popular choice at the time it was built but not in vogue at the time the Hotel was built. The cost of the Hotel marble was better value for money given that marble is a very durable material whatever the quality. The finished product is a bright and modern lobby. Hang Lung would have been criticised if they had tried to copy the GPH lobby. Given that a different style of lobby was, rightly, designed the choice of materials was, rightly, governed more by the designers' objectives than by slavish compliance with things such as the cost per square foot of the GPH marble or its thickness or the reputation of the supplier. The materials themselves were selected by Martin in May 1997, 14 months prior to completion. 87.It is worthy of note also that the more you spend on marble the more reluctant you would be to replace it when a refurbishment is due. The materials used at the Hotel were not cheap or fake, they created an award-winning lobby and the future Hotel owners might feel more inclined to alter them in, say 10 years, time, if fashion and style warranted a change. The walls and floors continue to serve the Hotel well to this day. It is worthy of final comment that being a 'long stay hotel' the lobby and reception counter traffic causes less wear and tear than at a full service hotel.
The first sentence adds little to the complaints at 10 to 13. The second sentence is a C at best.
Power points are fittings but I prefer Mr Cornelia's evidence (and his opinion at page 71 of his report). He considered the power point provisions at the Hotel to be superior to the GPH.
Three leaks were identified prior to Completion. Whether or not they were repaired is unclear. Leaks persisted after 30 June. It was a problem probably caused by workmanship rather than quality and standard of finishes. In any event it was an unsatisfactory state of affairs which constituted a breach by Hang Lung. In my view, however, it would not have prevented the Hotel commencing business. Hotels do not close down if they spring a leak. 91.Condensation is an ongoing seasonal problem in Hong Kong. Mr Loader's inspection was in June. The absence of condensation would have been surprising.
The high point of this particular complaint was that the essential trap doors were 18 inches closer to a guest's eye, should he or she look upwards, due to the fact that the ceiling was lower. SCHEDULE B 93.Of the 59 complaints pleaded, Sino, in their final submission, highlight 28 as being breaches which they contend are supported by the evidence. They were under four categories. (1) The omission of fittings and furniture necessary for the Hotel guests' comfort and enjoyment
It is true that one is not equivalent to two however, the Hotel rooms were smaller and its one TV superior. It is a technical breach but a minor one.
The Hotel had a combined phone/fax machine on one line. It was prophetic of the developer not to overspend on fax facilities. They have been largely superceded by email.
This is correct but the two wardrobes were differently designed and the Hotel had mirrors on the walls. As to the quality of the wardrobes Mr Tuffin found two to be inferior. Overall the complaint is not made out.
It is no answer for Hang Lung to say that it is impossible to compare if the Hotel has no safes. To achieve an equivalent standard of room, safes should have been included.
The Hotel had hand-held hairdryers which Mr Cornelia opined were more popular. Bathroom phones should have been supplied. In short, bathroom phones D, hairdryers B, shaving sockets C.
(2) The specification and installation of fixture and/or fittings and/or furniture which were inferior to and less durable than the fixtures, fittings, furniture to be seen in the renovated rooms at the GPH
Taken together these complaints refer to the hard furniture in the rooms. I consider the size of the writing desk to be a B category complaint. Its size is adequate and suitable for the space into which it was put. It could not have been any bigger. The chairs were of a poorer quality than the GPH and so were some of the tables. The balancing factor is that the furniture in the Hotel rooms all matched, whereas in the GPH it did not. There were several pros and cons on this issue. It is D borderline C. Mr Thomas submits that if Sino really did not like the furniture they could have and should have simply rejected it.
There were problems at both hotels with the cill board veneer. If it was any worse at the Hotel it was due to the three-sided shape of the windows attracting more sunlight, not the quality of the cill itself.
There are slight differences in manufacture. In evidence Mr Cornelia produced cross-section drawings of both, which indicated the differences were in fact very minor. On his inspection, four years later he found them to be surviving customer wear and tear. They had been installed with equivalent workmanship to the GPH. Overall, the Hotel skirtings were slightly inferior but would make no difference to hotel enjoyment and were as durable. The differences have been inflated.
As with the skirting complaint, Mr Cornelia produced drawings of the carpets when giving his carpets evidence. He was not particularly impressed with either of the carpets. In evidence, Mr Loader said his concern was not so much with the carpets as with the underlay. Ultimately the carpets themselves passed the equivalence test but the underlay did not. The difference was therefore small.
The appearance of the vanity units is highly subjective. Mr Cornelia's preference was for the Hotel's units. On the evidence it is not possible to conclude that equivalence was not achieved. (3) The execution of decorations, fixture and fittings in an unworkmanlike and defective fashion unlike the GPH so that the guest rooms are unattractive and required much immediate remedial work
This complaint has already been dealt with in part (1) supra.
The difficulty with this complaint is that, although at the time of Mr Tuffin's and Mr Cornelia's inspection little fault was found with the hanging of the doors, the evidence is unclear as to how much remedial work was done after June 1998. I accept Mr Loader's 1998 report. It is worthy of note also, that Mr Corenlia was unimpressed with the architraves generally even at the time of his inspection.
This is a comprehensive complaint which is lacking in detail. The later inspection by Mr Tuffin resulted in the following opinion : "the workmanship in the Bay Bridge was generally acceptable and was certainly acceptable in the context of a comparison with that found in the GPH". Ultimately I was not satisfied that this complaint was as serious or as extensive as contended for by Sino. I do not think the evidence establishes a lack of equivalence in workmanship and thus also in the 'finishes'.
Sealant was present at both hotels. The visibility of it at the Hotel was due to the design of the windows. The mere presence of sealant does not amount to a breach of contract within the 'equivalence' exercise. It is more relevant to the leaks issue and whether the rectification of leaks was a "snagging" item to be dealt later or whether it was so serious as to prevent the Hotel opening for business. In view of my earlier finding on the matter it becomes a B item.
Again, the totality of the evidence from Messrs Loader, Tuffin and Cornelia does not satisfy me that there was a lack of equivalence in the standard of wallpapering to a sufficient degree to regard as a serious complaint. Again, the extent of the complaint is unclear. Faults could be found at both hotels. I expect that for every photograph showing unsatisfactory alignment there could be hundreds showing satisfactory alignment.
Having considered the evidence I regard the lack of flatness, if any, to be virtually unnoticeable.
There is evidence that this complaint existed both before and after 30 June 1998. However, it is difficult to assess its extent of seriousness.
I am driven to place this item in the C pile as well. I find that the workmanship at both Hotels can be described as adequate and such differences as there may have been do not amount to a failure of the equivalence test.
(4) Deficiencies in the fixtures and fittings in the Hotel guest rooms by way of comparison with the GPH which deficiencies affect the safety or security of the guests
The word "some" should read "a small number of".
In fact there were no door phones at the Hotel at all. The very different security arrangements at the two hotels render them unnecessary at the Hotel.
The complaint as pleaded existed but it was minor in nature. 117.Before moving on to Schedule C, it will be plain to see that the serious breaches found against Hang Lung are few. Many others are trivial in themselves or are trivial in the sense that there is little difference between the two hotels on that particular item. Taken all together, the breaches which emerge from the comparison exercise limited to the guest rooms and lobby, do not constitute a state of affairs in which Hang Lung were in repudiatory breaches. SCHEDULES C AND D 118.In view of my findings already made in relation to implied terms my consideration of the complaints in Schedules C and D are limited. Where the complaint stems from the design of the Hotel and the lack of facilities in "other areas" it need not be addressed. Also, when the complaint is specifically based on a lack of equivalence with GPH materials it need not be addressed. 119.Although standard implied terms, such as those relating to "good workmanship", "materials fit for the purpose", etc. are not specifically pleaded, they are necessarily included in the implied terms that are actually pleaded. The pleaded implied terms only fail to bite to the extent that they seek to expand the GPH benchmark equivalence test in Clause 2.01(b) from the lobby and the guest rooms into the entire Hotel and to the extent that Hang Lung was obliged to amend the plans to change the design of the Hotel into a full-service hotel. 120.The complaints that survive, to be considered in Schedule C, are numbers 3, 3A, 5, 6, 7, 8, 10, 12 and 14. It is no longer appropriate to grade the complaints A, B, C, D or E because "equivalence" is no longer a factor.
The further and better particulars list 11 examples. They are all very minor and easily rectifiable. Taken together they indicate slightly substandard workmanship which would be put right by the contractor. The particular example quoted in the original pleading has no substance because it was a temporary hoarding which was taken away.
They were at an acceptable height. It is a matter of taste.
The five examples quoted in the further and better particulars are based on a comparison with the GPH. Putting that to one side, the evidence suggests that the grouting at the Hotel was, in places, substandard. It required remedial work which would be straightforward in nature.
This complaint related to two small and isolated areas. It is a complaint of little or no consequence.
The problem existed, its extent is not clear. The solution was straightforward and would not require great skill or time.
Six particular areas are identified. 127.I am satisfied that Mr Loader in 1998 found more leaks than Mr Tuffin in later years. I have dealt with the general problem of water leakage earlier in this judgment. Such leaks as there were, were reparable and probably not caused by serious design faults. Most had been repaired by the time of the inspection by the defence experts. Mr Blackburn's suggestions that : "This was a leaky hotel" and "this hotel leaked" overstated the problem. I find it was not a problem, which could form part of Sino's decision not to complete.
This complaint relates to two specific areas and is in my judgment very minor indeed. It is the type of complaint that if every stone is being turned, it might as well be added to the list.
This is correct, it did not. It was mended.
In the further and better particulars, four particular complaints are identified. Whether these were caused by poor workmanship, by contractors or wear and tear by later customers, they would have been remedied in the course of routine maintenance. 131.Schedule D lists 30 complaints. Numbers 13 to 29 inclusive relate to design issues which could have only been remedied by amendments to the approved plans. If the breach alleged is because such a facility would be in a full-service hotel but it was not in the Hotel, there is no breach. If the alleged breach is that even a properly constructed long stay hotel would not suffer from the complaint alleged then it should be considered. Items 1 to 8A inclusive and 11 are electrical and mechanical matters to which I give separate consideration later. 132.Item 9 complains about the difficulty of using the gondola to clean the hotel windows. It is correct that it would have been difficult, but as accepted by Mr Loader, not impossible. The shape of the building had been known since the mid-1990s. Item 10 is that the pool would have to be closed when the windows were being cleaned. This was one of the many complaints which Mr Thomas described as a "non-point". I agree. Item 13 states that if certain pipes in the PABX room leaked they would cause damages to the telephone system. It is true that they might, but they have not. SCHEDULE E 133.This concerns the electrical, mechanical and plumbing installations. As before the equivalence issue does not arise. However, the absence of the equivalence issue does not make the issue any easier. In matters of fire safety and electrical installations questions of danger to the public arise. 134.Of the 32 items in Schedule E, item E1, grew into the item of greatest significance as the evidence unfolded. The pleading in the Statement of Claim was that :
135.Mr Danny Choi, junior counsel for the plaintiff, very helpfully produced a 90-page schedule setting out the evidence, the reports and the plaintiff's analysis of the issues under Schedule E. Almost a quarter of the schedule deals with item E1. What follows is an attempt to crystallize the issue still further. 136.The crux of item E1 concerned the fire compartmentalization of the riser shafts. The riser shafts were ducts which went the height of the building. Pipes also went the height of the building through these ducts. At each floor pipes branched off at right angles through the side walls of the shaft and into each floor providing the services of air, water and electricity. In a nutshell the issue came down to this. The plaintiff said that, even if the branch pipe had fire dampers at the point where they penetrated the side walls (thus preventing fire and smoke from spreading from the shaft into the guest rooms and public areas) the vertical pipes, at the point where they penetrated the floor slab from one floor to the next, were not fire-proofed with either fire dampers or adequate cement sealing. Thus fire and smoke could spread up the height of the shaft. 137.If the plaintiff was right, then the defendant had failed to achieve the required and proper fire compartmentalization of each floor. The defence case was that the riser shaft was a fire compartment of its own. They said that, provided fire could not escape sideways into each floor (and the fire dampers on the branch pipes ensured that it could not) and that any fire in the shaft could not escape from it, there was no breach. It was also the defendant's case that the cement sealing in the vertical pipes from floor to floor was properly done. Whereas the photographs did show examples of a lack of cement in the ceiling of the shaft where a pipe penetrated the floor slab, they did not show the point where the pipe emerged into the next floor. In other words, the defence case was that the cement sealing need only to be done from one side, not both. If there appeared to be no cement, for example, at the ceiling point of the 8th floor, there would be cement sealing on the floor of the 9th floor where the pipe emerged on its upward journey. 138.In short, there were two primary sub-issues :
139.With some difficulty, I have come to the conclusion that in respect of both questions the plaintiff has failed to satisfy the court that the answer is "no". 140.The plaintiff's case is by no means devoid of merit. It is appropriate to set out a summary of their analysis of the evidence :
The above is only a summary of the points made by the plaintiff which are relevant to the two questions posed. 141.I will now outline my reasons for concluding why Hang Lung have succeeded in defending these complaints. (1) The riser shaft 142.The shafts are big enough for a man to enter at each floor. Inside are numerous pipes of numerous shapes and sizes. The walls of the shaft are brick-lined. The bricks go from the ground floor all the way to the top of the building, save at each floor level where the concrete floor slab is evident. Thus, if you walk into the shaft the floor and ceiling is a floor slab and the walls are all brick. The bricks are covered with some sort of rendering. The thickness and nature of the rendering on the inside of the shaft was not measured or analysed. Neither was the thickness and nature of the rendering on the outside of the bricks. On three sides it was the plaster work of the guest rooms and on the fourth side it was the door into the shaft itself. 143.I was satisfied that all lateral pipes had adequate fire dampers at the point they penetrated the walls of the shaft. In addition, it was not in dispute that there were no fire dampers where pipes penetrated the floor slabs. In my judgment it is logically sound to conclude that the absence of fire dampers in the floor slabs and the presence of fire dampers in the shaft walls points to a design intention (which was apparent from a very early stage in the design of this Hotel) to make the riser shaft a self-contained fire compartment. If the intention had been to make, for example, the shaft area on, say, the 8th floor part of the fire compartmentalization of the entire 8th floor, then the fire dampers would have been present in the floor slabs in the shaft and not in the walls ― the very opposite of what was in fact constructed. 144.Mr Loader for Sino accepted that the riser shaft was a "protected" shaft. Mr Frankie Ho for Sino accepted the logic of the positioning of the fire dampers. Against the proposition that the shaft was a fire compartment on its own he said that the record plans did not show it as such. The defence answer to this, which has much force, is that neither was the lift shaft shown as such and the lift shaft is plainly a separate fire compartment. 145.It is also argued for Hang Lung, again with some force, that this issue was "latched onto" in the course of the evidence without it being a separately pleaded point. In his original report Mr Ho raised the issue of inadequate sealing around pipes and ducts, but did not suggest that the fire compartment of each floor included that part of the shaft on that floor, rather than what Hang Lung contend, namely that the entire shaft is its own compartment. 146.Further careful consideration of the Code of Practice governing fire-proofing ultimately narrowed the argument down to half an inch of plaster. The reason was as follows. If it is established that the architect's intention was that the shaft was a fire compartment of its own (and I have found that it was) the only question which remains is whether the shaft as built succeeded in being such. The dimensions and materials of the shaft walls did comply with the Code of Practice so as to give it a sufficient minimum period of time for resisting fire spreading, provided there was half an inch of gypsum plaster on either side of the walls. There was no certainty about the evidence on this point. There was rendering on both sides. The outside was the plaster of the guest room walls, the inside was what appeared on the photographs. Where there is a lack of evidence on a particular point such as this, some comfort may be drawn from the fact that a certificate of fire safety had been issued by the Fire Services Department and has been renewed since. It is not evidence of compliance and on its own is insufficient to be relied on by Hang Lung as an answer to everything. If a scintilla of detail is missing however, the existence of the certificate helps to put the bigger picture into focus. 147.A final factor for finding against Sino is that it only really flowered into an issue during the cross-examination of Hang Lung's expert witness, Mr Jeffrey Gosnell. Mr Gosnell believed, and he said so in evidence, that the fire compartmentation was not an issue, which is why his report did not specifically deal with it. Mr Thomas' description that it illustrates "the plaintiff's opportunism in seeking to identify new defects or magnify the gravity of defects already identified. The plaintiff's case never stays still. It mutates like a virus as the evidence unfolds at trial", makes the point albeit in terms which may be regarded as somewhat graphic. (2) Inadequate sealing of pipe work generally 148.There were a number of photographs which showed gaps (i.e. unsealed areas) around pipes penetrating the floor slabs and walls of a shaft or duct (containing the pipe work). 149.Concern about the adequacy of the sealing of pipe sleeves was undoubtedly raised before 27 June 1998. It is also correct that when Mr Loader re-inspected on 29 June rectification work (the extent of which was considerable although possibly not comprehensive) had been done. The adequacy of this work was an issue between the parties. 150.The plaintiff's photographs showed gaps around pipe sleeves from one side only. The defence said the other side, not photographed, would have been sealed. The issue became ― should one side or both sides be sealed? The 1996 Code of Practice was again consulted. Paragraph 5.2 states :
Paragraph 6.4 states :
Table 3 states :
151.Mr Gosnell's evidence, which I accept, explained that as "each side separately" came under the column "Method of exposure" it referred to the "testing" of the seal (as per paragraph 6.4) not the sealing of it. He said in evidence :
152.A separate complaint was made about the adequacy of the fire resistance where the chilled water pipe passed through the floor slabs in the electric meter rooms. It is correct that Hang Lung instructed Shinryo to apply further sealant to gaps in these areas. Whether it was necessary to do so is another matter. Any further sealant would be extra protection. Such pipes already had a steel fire stop welded around it. According to Peter Ho : "The fire collar and the fire stop should already be able to achieve the purpose of fire resistance". 153.What remains is the quality of the workmanship. Hang Lung concede that much of the work is untidy. Sino go much further and describe it as a "botched job". 154.As already indicated I have concluded that the work done, or not done on this issue, did not constitute a fundamental breach. The workmanship was, in parts, less than adequate. For example, one or two photographs show the presence of polystyrene, loose concrete, some gaps, poorly applied fibreglass and untidy finishes. Many of the complaints at this level are justified. It is not possible to quantify them in any detail. Such breaches as there are may be numerous but I find them to be, even when taken collectively, not serious in nature. ALL OTHER ELECTRICAL AND MECHANICAL COMPLAINTS 155.These are numerous and not confined to Schedule E. In so far as the implied term as pleaded in paragraph 31(c) of the Statement of Claim relies on "standards ... commonly expected of a hotel with the standard referred to in sub-paragraph (a) above" (namely one equivalent to the GPH) it has no application to the court's task when considering each individual complaint. Standard implied terms relating to workmanship and suitability of material do apply as does compliance with regulatory standards. 156.I will deal with the Schedule E items first. Thereafter, there are three items in Schedule B (to which the equivalence test applies) and six items in Schedule D which come under the electrical and mechanical heading. 157.It is difficult to make an evaluation of "breach" or "no breach" in each case. My approach will be to comment on each item, sometimes making a specific finding sometimes not. Expressions such as "technical breach" or "trivial breach" will feature. These expressions do not necessarily indicate that the breach is of no consequence.
This was a breach but a very minor one which would have been very simple to rectify. It would not have affected the opening of the Hotel.
The evidence was that some flexible air ducts had indeed been damaged after installation. I accept Mr Gosnell's assessment that, at its highest, it was not a major deficiency and its effect on the overall performance of the ventilation system would have been marginal. In short, a minor breach.
I do not find this to be a breach at all. The fire dampers were not "not accessible" they were merely awkward to access. This is unsurprising given their function and the fact that they do not require routine maintenance, they only require an annual inspection.
This complaint is classically "de minimis". One door was stuck. The ease or difficulty with which it could have been unstuck did not become apparent.
In part, this complaint is based on the fact that compression joints were used at the GPH. To that extent, it is non-point. It further remains a non-point because it was accepted that both compression (screwed) joints and capilliary (soldered) joints were used at the Hotel depending on the particular location of the joint. The allegation of untidiness referred to "some adhesive tape not tidily applied".
Potentially, this would be a breach of Clauses 15A(1)(a) and (b) of the Code of Practice for the Electricity (Wiring) Regulations 1997. The Code does permit water pipes in electrical rooms providing they are so arranged that no damage will be caused should water leak. The water pipes had welded joints thus reducing the risk of leakage. Moreover the electrical equipment in the electric metre room was wall-mounted, high enough to be away from flooding problems and in the main switch room the electrical equipment had a clearance of about eight inches above floor level. I find this to be an exaggerated complaint and not in breach of the Code.
Mr Ho's inspection was in June, he saw condensation. Mr Gosnell's was not during the hot and humid weather, he did not see condensation. I do not find there to have been an endemic condensation problem amounting to a breach of an implied term. Nor one that would prevent the Hotel from operating.
On the evidence this was an isolated breach of the Code of Practice which was not remedied until about six months after the date for completion. As to its seriousness, it was a very simple task to rectify.
In the 1998 inspection improperly secured non-sheathed cables were noted in 13 rooms. This is a breach of the Code of Practice. In Hang Lung's defence it is pointed out that, with one exception, there is no allegation that live wires were exposed. The one exception related to a photograph of a mini circuit breaker board on which there was a small opening into which a very small finger could possibly be put. There was a possibility of a live wire being nearby inside the opening. The MCB board was protected by its own metal door and was inside a locked room. The reality of this complaint is that a straw, not a live wire, had been grasped by Mr Ho. The other non-sheathed wires were technical breaches, which could be quickly and easily dealt with.
This was a breach. The location of the problem would not have affected hotel guests but it could have affected hotel maintenance staff. They were in ceiling voids.
This refers to bits of concrete and cement left behind which could therefore cause corrosion to the metal pipes. On balance I found that all the evidence on this complaint did not succeed in elevating it above that of being a cosmetic problem due to some sloppy workmanship which could be quickly and easily remedied.
The 1997 Code stipulated a maximum length of one metre. The 1992 Code had no such provision. Mr Gosnell's view was that the installations conformed with good engineering practice. In my judgment such breach of the 1997 Code as there may have been was of no consequence.
The evidence revealed that the labelling of electrical equipment was deficient. Like many items before and after this one it is correctly categorized as a 'snagging item' which could easily have been rectified during the defects liability period. The deficiency would cause some inconvenience to maintenance staff and no more.
Two issues emerged here. Firstly, the lack of supplementary bonding to metal ceiling panels in the bathrooms. The evidence was that it was lacking at the time of the June 1998 inspection. By the time of the 2002 inspections it had been provided. There had been a breach of the 1997 Code in 1998. Secondly, whether toilet accessories made of metal required earthing at all. Mr Gosnell said he had never seen supplementary bonding of toilet accessories. In cross-examination, he was confronted with some photographs from other Hong Kong hotels where it had been done. Ultimately, Mr Gosnell's evidence persuaded me that it was not a requirement but it could be done in an excess of caution.
This related to the sufficiency of copper tape on the roof to protect the building from lightning strikes. The evidence was that prior to the date for completion more copper tape was being installed. The probability was that it was completed either before or soon after 30 June 1998. No reasonable purchaser would hold up completion if this work was not quite completed in time. There had always been lightning protection. It was being improved.
This is a minor breach. The lack of ventilation existed in six small electrical rooms which contained MCB panels. The low electrical load in those rooms would not result in high temperatures. The need for ventilation against rising temperature did not therefore exist.
Apparently, such damage is not uncommon. In this case it was not extensive damage and easily reparable by "combing" the fins. I regard it as a trivial complaint.
As with previous condensation issues Mr Gosnell did not see any on his later inspection and believed that the problem which existed prior to June 1998 had been rectified. The evidence also suggests that the problem continued, to what extent is not known, after July 1998. The answer that condensation is a perennial and seasonal problem in Hong Kong remains.
These exhaust air louvres did not blow air into an area where members of the public would ordinarily be. If they blew air on to a street or a footpath (which they did not) the regulations state that the louvres would have to be 2.5 metres above ground. The louvres in question were 1.7 metres. The fact that the lower portion of the louvres was later blocked off is, in my judgment, not an admission of the breach but an excess of caution, the Ventilation Division of the Fire Services Department having already accepted the installation prior to the issuance of the General Restaurant Licence.
This was a breach in June 1998. The matter was later put right. It should have been rectified before 30 June 1998.
It was agreed that the headroom was less than recommended in the "Guidelines for the Design of Small Sewerage Treatment Plants". However this document provides guidelines not regulations and in any event warning signs were later put up. At best it is a minor breach soon remedied.
This was a breach which was not rectified.
This complaint was not made out. Mr Ho accepted that bending pipes is standard practice and in many locations is preferable to making a bend by using a compression joint.
This is another technical breach. It was quickly and easily rectified after 30 June 1998. A simple mesh cowl was placed over the top of the pipes on the roof.
Another breach remedied later.
The evidence showed that there were inadequacies and some damage to the insulation material around the hot water pipes. This was due to poor workmanship. It was a maintenance type of job to improve the standard of the insulation. The performance of the installation was not seriously affected by the defect. A complaint in the 'snagging' category.
With the exception of one pump this problem was solved by sealing joints in the anti-vibration cork pads with bitumen. The standard of both the original work and the rectification work appears to have been poor. 185.This constitutes a minor breach. There was no evidence of the problem escalating into a 'nuisance' to the guests.
This is a design complaint which was noted in 1998 but not again. It was a one-off observation and as such does not constitute a breach.
The evidence suggests that this was a minor problem which went away. Possibly, as a result of the suggestion put to Mr Ho in cross-examination, namely that if you reset the pneumatic pump the surging stops. 188."(26) Outdoor ferrous materials were not sufficiently protected from corrosion. Rusting was already apparent." This was another instance of poor workmanship. Mr Ho accepted that it was sufficient to paint the areas of exposed steel to prevent rusting. It appeared however that some areas had been re-painted without removing the rust first. It is a maintenance issue. 189."(27) There were no surface channels to collect rain water on the roof." The original drainage plan had been accepted by the Buildings Department before the Occupation Permit was granted. No regulations were breached. 190.I now move on to six items in Schedule D which are electrical and mechanical complaints. 191."(iii) Obstructions in the pipe ducts and services areas on each floor prevented access and maintenance." The arrangement of pipes and concrete columns in the ducts is such that it is difficult to gain access to all places within the duct. It is congested and inconvenient. However the areas which are difficult to access are low or nil maintenance areas and they are not impossible to reach. At the end of both Mr Ho's and Mr Gosnell's evidence on the subject I concluded that the need for access was rare and when needed it would be awkward. However, constructing the ducts in this way does not constitute a breach.
Mr Ho did not pursue this complaint.
Mr Ho agreed not to rely on the words "if not impossible". It was another complaint of awkwardness. There is a lot of plant on the roof but my own experience was that it was no more difficult to get around than one might reasonably expect. I conclude therefore that any non-compliance with manufactures' guidelines should be regarded as minor. The result was occasional irritation in having to clamber across plant using ladders and catwalks. I am not aware of any complaint that locations for maintenance were out of reach. Neither is there any complaint that any machinery has broken down or under-performed due to its inaccessibility for maintenance purposes. I do not find that the arrangement of plant on the roof constitutes a breach. 194.Finally there are three items from Schedule B. 195."7. The provision of power points was insufficient in itself and inferior to the provision in the GPH." It is not necessary to consider all the rooms and all the suites on all the floors. There were instances where the Hotel had fewer power points in the guest rooms than at the GPH. There were instances where the Hotel had no spare power points but the GPH did. These instances constitute breaches because equivalence had not been achieved. In many rooms the number of power points at the Hotel was sufficient. The lack of equivalence was not throughout the entire Hotel but limited to a certain number of rooms. 196."8. Two-thirds of the push buttons on the bed-side panels did not operate properly." This problem certainly existed in mid-June 1998. There was a dispute between the parties as to whether it was solved before the end of June 1998. A letter from the electrical sub-contractor Wenden, dated 28 September 2000 suggests that it may have been (I say "may" because the wording of the letter is ambiguous). Even assuming that some buttons still did not work after 1 July 1998 it became a repair job for the electricians. The panels themselves did not suffer from lack of equivalence with the GPH. The evidence on the subject leads me to conclude that if the problem was not completely solved by 30 June 1998 what remained was a de minimis breach. 197."18. The air grilles were of inferior function to those in the GPH." After considering the evidence from both sides on this issue I was left firmly of the view that such differences as there were between the air grilles in both Hotels were of no real consequence and made little difference to their function or performance. 198.In conclusion, in respect of Schedules A and B the court must consider the extent of the failure to achieve equivalence, in respect of C, D and E the court must look at the totality and type of failures to comply with standard implied terms and statutory regulations. In respect of all Schedules the court must also consider whether or not the totality of the breaches prevented the Hotel from opening and functioning as a long stay hotel. 199.For breaches of implied terms Mr Blackburn directs the court's attention to the following authorities. 200.In Sutcliffe v. Chippendale and Edmondson, (1971) 18 B.L.R. 157 it was said that the contractors :
201.In Yeoman Credit v. Apps, (1962) 2 QB at p. 520, Pearce LJ said :
202.It is agreed that these extracts fairly represent the law. Whether or not they apply to the present case depends on the findings made in the present case. Had Sino's complaints been substantially upheld then the breach of express and implied terms would have been so great as to entitle this court to conclude that there had been a fundamental breach excusing Sino from completion. My findings however, taken as a whole, leave Sino well short of that position. SECTION C 203.The scene for Section C is the roof. The issue is whether Ocean had good title to the property at the time of completion and whether they showed the defendants that they had such good title at the material time. 204.The main items on the roof which have given rise to extensive debate and argument are the concrete plinths, chiller plant on the plinths, gondola anchor posts, the gondola system, I-beams, ancillary steel work and an opening in the roof slab which was repeated at every floor level below it (this is not a complete list). 205.It has not been easy to decide in what order the many sub-issues should be addressed in this judgment. The decision on one sub-issue sometimes has an impact on the answer to another sub-issue, other times it does not. The parties, in their final submission have not dealt with the issues in the same order (although the totality of their final submissions is nonetheless comprehensive and of great assistance in the court's task). 206.My approach is to divide Section C into three main sub-issues :
207.Before starting with the first of these three sub-issues a further preliminary observation should be made. In any case of this size the court places great reliance on the parties' final submissions. Inevitably, they are more than mere skeleton submissions. They contain every argument which the author hopes will find favour with the court and almost every reference to law and fact upon which that parties relies in support. They do not define the boundaries of the court's consideration but it would be rare indeed if a case such as this turned on a matter not included in the final submissions. 208.Having read as much material as possible before the trial, having heard the evidence, having heard the arguments, having read the final submissions and having considered all of the above carefully a decision, on each issue, has to be made. It is not surprising therefore that the successful party's submissions get greater coverage in the judgment. In some instances the losing party's submission has not been recited. This is not because it has not been considered or because it has no merit, it is merely because the opposing submission has been preferred. 209.The main paragraphs in the Statement of Claim (as amended) which relate to Section C are :
210.I shall refer to those parts of the agreement itself which are referred to in the above extracts only so far as is necessary hereafter. (1) Was it necessary to show such roof installations on the general building plans when submitted to the BA for approval? 211.I deal with this aspect of the issue first as a separate sub-issue because although it forms part of the argument as to whether Ocean had "such good title", my decision on it has a significant bearing on the whole matter. 212.Section 41(3) of the Building Ordinance, Cap.123 provides :
213."Building works" is specifically defined as :
214.The items under consideration under this heading are the concrete plinths for the chiller plant, the gondola posts for the gondola system and the opening in the roof slab. THE PLAINTIFF'S CASE 215.The plaintiff's case is that the items in question are building works which are not exempt under section 41(3) and therefore require approval from the BA which they did not have because they were not on the plans submitted to the BA. The plaintiff submits that they are not exempt because they are "involving the structure of (the) building". Experts from both sides gave their evidence as to what "involving the structure" meant. In short, Mr Brain Clancy for the plaintiff said "involve" should mean "affect" or "have an impact on". Professor Barnabas Chung for the defendant said it meant to "affect adversely" in the sense that it would change the performance of the structure of the building. 216.The plaintiff further argued that the defendant could also not rely on section 41(3) because the roof installations were not "in" a building, they were "on" a building. I shall deal with this part later under "the defence case". (a) Gondola posts 217.There was no real dispute that the gondola posts constituted "building works". The plaintiff's case, and the heart of the issue, was whether they were exempted works under section 41(3). Mr Clancy opined that they were building works, involving the structure of the building and not "in" the building. They were not exempt. In support, reliance was placed on other projects where gondola posts had been shown on the relevant plans prior to submission for approval. In particular, the Mayfair development, the Clifford Centre and Lei Muk Road. Much time and resources were invested into consideration of these and other examples to demonstrate what the BA did or did not require on the plans. As will be seen when I deal with them in a little more detail under "the defence case" the amount I have gleaned from them which directly assists me in this case is disproportionate to the amount of time spent and documents produced about them. 218.The plaintiff also places considerable reliance on the fact that on the day of completion the defendant set about (but, they say, failed, in time) to dismantle and remove the gondola posts from the roof. This they say, is cogent evidence that the defendant realized the posts were not exempted works and that their presence at the time of completion would be a defect in title. Whether or not the posts were there prior to the issuance of the occupation permit ("OP") was not the issue, it was common ground that they were installed after the issuance of the OP. The issue, as advanced by the plaintiff, was whether these non-exempted posts were present at the time of proposed completion on 30 June 1998. This sub-sub-issue provided (rare) moments of court room drama. The defence relied on photographs which they said were all taken by Mr Peter Ho with one camera on 30 June 1998 showing a complete absence of posts, they having all been dismantled that day. Mr Peter Ho's evidence was supported by Mr William Ko. The plaintiff's case was that the evidence of Messrs Ho and Ko was not true and that the photographs were not all taken on the same day with the same camera. In short, the situation on 30 June was not as shown by the photographs. There were over 50 photographs. The configuration of date on 12 of them was different from the rest (i.e. 30-6-98 on some and 98-6-30 on the rest). Also the photographs showing the date as 30-6-98 had a defective final digit (one of the lines comprising the digit was missing) which was not apparent on the other photographs. The apparent explanation for the defective digit, as advanced by the defence, was a spec of dust inside the camera. As to the different date configuration the defence pointed out that the same camera could show both configurations. 219.The plaintiff relied also on the fact that documentary evidence suggested that labour was paid for on 1 July in connection with the dismantling suggesting it was only partly done on 30 June. Also, their researches suggested that the photographs allegedly taken on 30 June showed only a small number of dismantled posts lying around, whereas had they all been dismantled that day they would have been shown, in their dismantled state, in more places on the 50 odd photographs. 220.The plaintiff's submissions on the gondola posts issue are summarized as follows :
221.My decision and conclusions on this issue will be dealt with under "the defence case". Suffice it to say at this stage that I consider the plaintiff's case to be overstated. I do not accept that there was any attempt by the defence witnesses to deliberately mislead the court. In any event, whether one, two or a dozen posts remained standing at midnight on 30 June is of little consequence because, as I find later, there was no need to remove them at all and, in any event, Sino had terminated the contract at 10.12 a.m. on 30 June. (b) Concrete plinths 222.As to the concrete plinths on which were mounted the chiller plant, the plaintiff again submits that they were building works, not in a building, involving the structure of the building. Thus, they were not exempted works. Again the key dispute is whether they "involved the structure". Again, the experts were divided. Again, the court is left in the middle of a great deal of conflicting expert evidence. Again, each side submits they are "plainly right" and that the other side's arguments are misconceived. Again, as a result of extensive research, the plaintiff points to other projects and developments where such plinths were shown on the plans submitted to the Building Department ("BD") for approval. The research resulted in plans, amended plans, correspondence and further documentation in relation to projects known as Windsor Heights, Island Pacific Hotel, Queens Place, Clifford Centre, the Mayfair, Man Yee Building, Millennium City, Parker House and Cooper Road being produced, referred to and compared. 223.The simple, but unfortunate truth is that there is no easy answer to the question, should concrete plinths on roofs be shown on plans? If it was an obvious "Yes", I am persuaded that the defendant would have obviously shown them. They were plainly in existence at the time of the Building Department inspection prior to the issuance of the OP, they plainly would have been seen by the BA inspector and they were equally plainly not included on the plans. It was no oversight that they were omitted. If the matter were simple it would have taken little time to debate and resolve it. In fact, it is a moot point, each project is different, each architect is different, each Registered Structural Engineer ("RSE") is different. 224.It would be a painful, and in my judgment unhelpful exercise, to analyze all the other developments to see if the plinths were on the plans, why they were on the plans, when they were put on the plans and so on. I have concluded that it is safe to glean little from the many examples quoted for the two reasons put forward by the defence, as follows. 225.Firstly, it is acknowledged that sometimes the plans include such installation sometimes they do not. There may be reasons for including them, there may be reasons for excluding them. If it were an automatic rule that they should be included, the defendant would have held up their hands. In particular I accept the evidence of Mr Henry Lau for the defence, where he says, in his report :
226.Secondly, the plaintiff's argument generally is diluted by reference to a particular example (which was a Sino development). All the examples formed part of the evidence of the plaintiff's witness, Mr Yu Wai Wai. In one case, that of Windsor Heights, it was suggested that the same architect as in the present case, Mr Nelson Chow, had included similar plinths on the plans, contrary to his avowed practice of not doing so. However, further research revealed (which I accept) that Mr Chow's practice was indeed consistent and that he had only departed from his usual practice in the Windsor Heights example on the specific instructions of Mr Yu himself. 227.For the sake of completeness, in a successful attempt to further dilute the plaintiff's argument based on comparisons, the defendant points to two others, Queens Place and Clifford Centre. Without reciting lengthy passages from the expert witnesses reports it is fair to summarize these cases as follows. They are examples of a BD officer asking for an installation to be shown on a record plan for the sake of consistency in that project. They are not examples which demonstrate a strict requirement that they must appear on general building plans. 228.In a nutshell, the plaintiff submits that the plinths had to be shown. They say that failure to show them was a fundamental and irreparable error. Their explanation for such a basic mistake being made could, they submit, be due to the relative inexperience of Mr Andes Wong at the time. I do not accept this. I found Mr Andes Wong to be an impressive witness and a competent professional. Under the next heading I set out the reasons for preferring the defence submissions on these issues. THE DEFENCE CASE (1) What actually happened 229.An OP was issued by the BD on 18 September 1997. The approved plans upon which the OP was issued did not show any of the roof installations and were dated 18 July 1996. Prior to the OP being issued the BD Surveyor, Mr Albert Wong and his team, had inspected the roof with the plans. At that time the plinths and chillers were already on the roof, the gondola posts were not. 230.It is worthy of note that the OP was not issued after the first inspection. It was in fact refused twice after inspections on 12 and 20 August 1997 but not for reasons concerned with the plinths or chillers. The reasons for the two refusals demonstrates the care and attention to detail taken by the BD before it was willing to issue an OP. For example, one of the many defects which required rectification after the first inspection was "building plans to ... reflect cat ladders location on roof...". It is fanciful to think that the Building Department failed to appreciate the need to show the entire system of concrete plinths and A/C plant whilst, at the same time, requiring dozens of other matters to be regularized including the cat ladders on the roof. 231.The only credible explanation for the Building Department making no requirements about the plinths and chiller plant is that they did not regard them as structural elements. In truth, the circumstances surrounding the issuance of the OP were entirely unremarkable, the BD followed its usual procedures and practical in relation to a perfectly typical Hong Kong commercial roof. 232.The matter next came to light in the frantic week before the proposed completion. On 23 June 1998 Sino's solicitors wrote to the BD Control and Enforcement Division. Also, on 29 June an unusual piece of theatre occurred when the Chairman of Sino personally hand delivered a copy of the same letter to the Director of the Buildings, Dr Choy. The plaintiff was seeking and was successful in getting a high profile response. The letter said :
233.The Building Department revisited both the site and the issue. It was a thorough exercise involving considerable manpower over a period of two weeks. The result, in one sentence, was that the Building Department had dealt with this roof in the same way as it would have dealt with any similar roof. It did not change its position. It confirmed that the plinths and plant had been present and observed at the time of the original inspection. They had been "considered acceptable... noting 7.5KN/m2 designed loading capacity of the roof and nominal scale of the plant/plinths." The approved plans (not showing the plinths etc.) were included. (The Building Department also recorded that the "gondola posts, additional doghouse, additional openings and chilled water return pipe inside electric metre room were not noted during OP inspection." In respect of the openings the fact that they were "not noted" should not be interpreted as meaning they were not in fact there. I shall deal with this aspect of the matter later in this judgment). In short, Mr Albert Wong's issuance of the OP had been approved. That of course is not the end of the matter. It is only the beginning. I have so far recorded the actual events. What now must be considered is whether the Building Department was right, as a matter of law, in its confirmation that the plinths etc. need not be shown on the general building plans of this building prior to the issuance of the OP. (2) What should have happened 234.If the plinths etc. are in fact structural elements the defendant cannot rely, as a complete answer, on a practice within the BD to treat them as exempted works. It is necessary therefore to examine more closely the meaning of the word structural. Not for the first time we find the experts in opposite corners of the ring. It would be pointless to set out all their different definitions and opinions. It is sufficient to record the fact that they do not agree. 235.In my judgment the opinions advanced by the expert witnesses called and relied on by the defence (Professor Chung and Henry Lau) are logical and safe to rely on. Professor Chung says that "involving the structure of a building" means affecting it "adversely". That must be right. How else could the "affecting" be relevant other than "adversely" for it to "involve" the structure. Merely placing a heavy weight on a roof cannot mean that a "structural element" has suddenly appeared on the roof. Bolting that heavy weight to the roof itself does not change the argument. Obviously, heavy weights cannot be put on roofs at random and ignored. They all have to be taken account of when doing the loading calculations but whether it becomes part of the structure of the building by its very presence is another matter. 236.The concrete plinths (and the steel I-beams) support machinery which is put on top of them. That is what they are for. They take the weight of that machinery. If the roof is strong enough to take all the weight of items placed on the roof that is the end of the matter. The plinth becomes an integral part of the machinery it bears, not an integral part of the building it rests on. No one regards the chiller plant itself as a structural element, nor the gondola system attached to the gondola posts. I simply agree that the plinths and posts which are part of the A/C plant and gondola system do not adversely affect the building's structure merely by virtue of their weight on the roof. The issue of their weight is confined to the loading issue, a very large subject yet to be addressed. By the same token, a statue on a roof, whether made of paper mashier or concrete, whether free standing or bolted to the floor, would not be a structural element of the building itself. 237.The plinths were not overlooked by Mr Albert Wong, the BD surveyor, rather it was "noted" that they had been taken account of by the RSE in the loading calculations. The plaintiff could still succeed in their action if it is shown that the structural integrity of the roof was inadequate to bear the loads placed on it but they cannot succeed simply because the BD did not insist on the roof installations being shown on the general building plans as structural elements. 238.It is appropriate at this point to be reminded of the role of the RSE in building projects such as this. It is the RSE's responsibility to ensure that the design load is not exceeded. The BA does not do its own calculations. It relies on the RSE. Mr Henry Lau makes this point in his report (with particular reference to the system in Hong Kong) :
239.Thus I conclude that the practice of the BD in this case was correct. That correct approach extends, in my judgment, to their approach to the word "in" in section 41(3). The plaintiff's argument is simply that nothing 'on' a roof can be exempted under section 41(3) because nothing on a roof can be regarded as 'in' a building. 240.The approach of the BD in this case is found from an extract from their internal files dated 7 August 1999, during the period when they were responding to Deacons' letters of 23 and 29 June :
241.The prevailing practice was to include roof installations when considering possible section 41(3) exemptions. In support of the submission that this practice was wrong the plaintiff relies on Good Think Consultants v. Attorney General & another [1996] 4 HKC. The case concerned an A/C unit mounted on the outside wall of a building. The last two lines of the judgment are :
242.In that case the item was indeed outside the building. However I do not regard these two lines which commence "In any event ..." as authority for the proposition that roof installations cannot come within section 41(3). A more sensible approach is to simply say that the BD's practice at the time was not plainly wrong. It is arguable, for example, to say that the provision is intended to refer to anything which is outside the building or attached to the outside of the building. Conversely, anything to which access is gained by going inside the building could be included. In our building the roof is akin to the 13th floor. Access to all floors, including the 13th, is gained by going "in" the building. I reject therefore the plaintiff's submission that the roof installations cannot be exempted because they are not "in" the building. (3) Other installations 243.The foregoing paragraphs have centred on the concrete plinths. I will now deal with the other items about which complaint is made.
244.I have referred already to the evidential saga concerning whether or not the gondola posts had all been removed by the end of 30 June 1998. 245.It is accepted that the posts were installed after the OP was issued. They were therefore not considered by Mr Albert Wong and the BD in August 1997. 246.My judgment on the whole matter is straightforward. They fall into the same category as the plinths, had they been in place at the time of the BD inspection for the purpose of the OP they would not have been shown on the plans, they did not require approval by the BD, they were not unauthorized building works, there was no need to dismantle them. 247.Neither is it necessary to examine why they were, in fact, removed. However, it is not difficult to understand the thinking behind the decision to take them down. It was a frantic time; a billion dollar project was at stake, the defendant would be anxious to ensure that every attack on the Hotel's 'good title' would fall on stony ground. The posts were physically movable so the defendant decided to remove one of the disputes from the battlefield. It was a mixture of an excess of caution and panic. 248.The plaintiff submits that the matter should not end there. They submit that the credibility of the defence case was severely dented by the "falsification" of evidence by Peter Ho and William Ko. I have already said that I regard the attack on their honesty and integrity to be overstated. As individuals they did not strike me as obviously dishonest or as having a desire to mislead the court. There was evidence on both sides of the factual dispute. However, for the reasons stated above, it is not necessary for me to resolve it.
249.After amendments the plaintiff's claim under this heading was that there was an opening in the roof slab which was repeated at every floor level below it. The chilled water pipes descended into the building through these openings. The plaintiff complains that these were not shown on the approved plans and thus no approval for them was granted by the BD. The same consequential argument (as advanced in relation to the concrete plinths) is that as a result the Hotel to be conveyed to the plaintiff had not been constructed in accordance with the approved plans. 250.The starting point for the answer to this particular item is to be found in the plaintiff's own experts report (Mr Fred Ng) :
251.Whether or not Mr Ng's opinion at (iii) above is correct or not does not matter because there is a preponderance of evidence from which it can be safely inferred that scenario (i) applies to this case. 252.Firstly, Mr Ng also confirmed that generally such openings are not shown on the general building plans. So their absence does not suggest they were built after the OP. Secondly Mr Andes Wong's evidence was that the openings had been pre-planned, and it was therefore reasonable to assume that the slabs had been cast with the openings in them, as planned. If the planned openings had been overlooked during the slab casting the contractor would have had to consult Fugro before it started to knock holes in the floor slabs to remedy the omission. This did not happen. 253.Thirdly, Mr Nelson Chow's evidence was :
254.Finally, the BD had given the matter due and proper consideration. The follow is an extract from an internal memo dated 15 July 1998 :
255.Allied to this unmerited complaint is a claim that there has been an unauthorized change of user. The claim is put as follows :
256.In my judgment this allegation is satisfactorily disposed by the evidence of the architect, Mr Chow, which I simply quote :
257.To conclude this part of Section C, I make a final observation. Both sides found it necessary, not surprisingly, to criticize the opinions of the opposing experts. I find it unnecessary to expand on the debate where the experts are specifically criticized for holding a particular opinion or to comment on reasons given why a particular view or theory should be devalued. It is sufficient to say that where I have made findings which depend on expert evidence I have preferred that of the defence. The ultimate effect of the findings made is that "good title" did exist at the time of the completion date. THE REQUISITIONS ISSUE 258.I shall treat this question as a self-contained issue, regardless of my findings hitherto. The underlying issue here is whether or not Hang Lung had shown that good title existed at the material time. 259.The plaintiff's argument is that the defendant had failed properly to answer their requisitions or to show that there was no risk of enforcement by the BD, or that any risk that did exist would be safely ignored. Consequently good title had not been shown. (1) Legal principles 260.For a statement of the basic test the plaintiff refers to the Hong Kong case of Kan Wing Yau v. Hong Kong Housing Society [1988] 2 HKLR 187, in which the court held that :
261.The judgment in the above case quoted and relied on the English authority, cited by the defence in the present case, of MEPC Ltd v. Edwards [1981] AC 205, in which Lord Russell of Killowen said :
262.Thus, the title shown need not be perfect but it must be good enough to survive any future challenges. 263.Hang Lung's primary obligation in respect of title to the property is contained in clause 2.01(a) of the agreement. It states :
264.A key word in this clause is in the penultimate line, the word "such". This plainly means that the good title which the vendor actually has, prior to completion, is to be the same good title which the vendor is required to prove under this clause. In other words, the defendant had to prove that title which I have determined in the previous part of this section that they had on 30 June 1998 and which was a good title. 265.Other legal principles which it is important to keep in mind when considering the requisitions are :
266.In the present case there was a flurry of activity in the week before the completion date. The matter should be viewed in context. The reality was that a serious dispute was brewing. Any atmosphere of co-operation and goodwill had long since gone. Heels were being dug in (and have remained so for six years). In this context the defence made two further, valid points. Firstly, the "reasonable time" principle cuts both ways. There should be time to both consider the answers and to provide them. Secondly, if a requisition is made very late, such as only a day or two before completion then, ideally and particularly with a massive project such as this, time to answer it should be extended. There is also a third point. The plaintiff suggests that because there had been an opposed application by the plaintiff to get an order entitling them to inspect the roof, it is not surprising that Mr Yu and the plaintiff were "filled with uncertainty about the legality of the roof features and lacked confidence in the defendant's answers to their enquiries". I think that interpretation of the situation misses the reality of what was happening at the time. By the end of June, litigation was looming, the defendant suspected, rightly, that the plaintiff was investigating every conceivable aspect of the contract to see if there was a way out. Not surprisingly, the defendant was not minded to give assistance in that quest. Rather they obliged only so far as they were required to do so by the terms of the contract and not an inch more. 267.In the present case the plaintiff submits that Deacons' letters of 23 June and 29 June were both requisition letters. The defendant relies on their answer by letter of 27 June. The plaintiff complains that their 29 June letter was never answered. The defendant says that, in any event, the 23 June letter was not a true requisition letter and they did not have sufficient time to answer the 29 June letter. In my judgment, these arguments are quasi technical and create unnecessary waves in the court's task. For the purpose of this issue, I consider both letters of 23 and 29 June together. They constitute the requisitions. They are not materially different. The key issues are common to both. The defendant's answer is the 27 June letter. In so far as that answer is deficient by virtue of the 29 June letter, they had insufficient time to answer it. In short, requisitions were raised and answers given. I will shortly deal with the adequacy of those answers.
268.In my judgment, submitting that the OP is "irrelevant" goes too far. The better approach is that contended for by the defence who cited the case of Woomera Co. Ltd v. Provident Centre Development [1984] HKC 298 (and on appeal at [1985] 1 HKC 257). The short point is that it would be unrealistic to ignore the fact of the OP. They are not issued lightly. Mr Chan for the defence summarized the Woomera case as follows :
269.In Woomera, at first instance the court observed :
270.And on appeal, the same point was made :
271.It is perhaps prudent to be reminded at this stage that I have determined that the offending roof items did not need to be on the plans, they were therefore not unlawful, therefore the question of enforcement does not arise. 272.Nonetheless, the question of "proof" of good title remains a live issue and I therefore now deal with the requisitions themselves. (2) The requisitions 273.Ignoring those matters which have not been actively pursued in this trial (namely, issues relating to the height of the building, the height of glass panelling by the swimming pool and an additional dog house on the roof), the 23 June letter raised concerns over three items, the concrete plinths, the gondola posts and the openings in the roof slab for the chilled water pipe. The letter suggested there were unauthorized alterations for which no approval had been given and which would affect the load bearing capacity of the roof. The letter asked for confirmation as to whether approval had been given or not and concluded by stating that "further requisitions" may be necessary. This letter must be regarded as a requisition letter because of the use of the phrase "further requisitions". However, it only asks one question - have these items been approved? - the answer to which is to be found by looking at the relevant plans where they plainly do not appear. No approval had been given because none had been sought. 274.The letter to the defendant's solicitors was rightly treated as a requisition letter and answered on 27 June 1998. The letter crystallized the issue. The relevant parts are in the following terms :
(It is perhaps worthy of note that other features were originally raised but have fallen by the wayside as the litigation has proceeded. The above three are those which have survived.) 275.The plaintiff contends that this was an inadequate response to their letter in which they only asked if approval had been given. As far as the plinths are concerned, it is submitted that it was insufficient merely to state that the building had been designed to withstand their loading and to assert (through CAL's enclosed letter) that they were exempt because of section 41(3). As far as the gondola posts are concerned, the plaintiff submits it was insufficient to rely on CAL's letter saying that they had no adverse effect on the building and were therefore not structural. In the case of the openings, similar criticisms are made. It is submitted by the plaintiff, that the answers are mere assertions and mere reliance on the attached correspondence was not a sufficient answer. Particular criticism was made of three short letters sent by Fugro to CAL. The wording of each of these letters varied slightly. Mr Chow was not content with the early wording and wanted it re-drafted before enclosing it in his letter to JSM (which was the correspondence attached to the 27 June letter). In fact, Mr Chow in his evidence, recalled there had been four versions, not three. I do not propose to analyse or expand on the debate about these letters in this judgment save in one respect. The plaintiff contends that the mere fact of three or four versions of the same letter from Fugro to CAL evidences their lack of certainty about the matters raised by Deacons and the unsatisfactory and inadequate nature of the answers given. I do not agree. I think Mr Chow had decided to be meticulous in the wording of the letter, not because he was concerned about its adequacy but because he was concerned about its clarity. The letters are dated 23 and 25 June and were all written, obviously, to deal with Deacons' 23 June letter. With the rumbling of litigation in the background, it was important that there should be no room for misunderstanding. Moreover, I do not accept the plaintiff's argument that even the final version of the letter did not state that the gondola posts were not structural. It is true that the words used did not include "not structural" or "non-structural". What was said was that "fixing of such posts has been checked to be structurally acceptable and does not impose structural concern". Based on the definition of "structural" being "adversely affecting" the structure, it is difficult to discern any real difference between the words actually used and the expression "not structural". 276.From 27 June 1998, the defendant's position has been consistent - there had been no requirement to show the features on the plans. I have already ruled that that position, as stated at that time, was and continues to be correct. 277.Deacons' second and longer letter with many enclosures was sent to JSM in the late afternoon on 29 June. Approximately 16 hours later, the letter of repudiation also landed on the JSM desk. The probability is that the second requisition letter and the repudiation letter were drafted at about the same time. As such, there can be no reasonable criticism that the 29 June letter was not answered. The plaintiff criticizes the defendant for not even asking for more time to answer them. However, such was the speed with which the repudiation letter followed the 29 June letter that it can be inferred that, by that time, the plaintiff was interested not in answers but in terminating the contract. Thus the court has some sympathy with the submission advanced by the defence that the "requisitions" contained in the letter of 29 June lacked bona fides in the sense that by 29 June there was no genuine intention to complete. However lack of bona fides does not mean there was mala fides. The meticulous nature of their investigations were permissible but it was plainly termination, not continuation that became the driving force. 278.Thus, at the time of sending the 29 June letter and immediately prior to the morning of 30 June, the following facts may be stated :
279.On the morning of 30 June, Deacons' termination letter complained, inter alia, that the defendant had failed to answer the requisition "timeously raised" and had failed to construct the Hotel in accordance with the approved plan. JSM's repudiation letter in reply soon followed and writs were exchanged without more ado. 280.Most of the court's findings in relation to their complaints have been made already. To conclude this part of Section C, and with apologies for some repetition, I make the following non-exhaustive summary of findings in answer to the question, did the defendant fail to answer the requisitions, and did they fail to show good title?
281.I now move on to the third and final parts of Section C which became known as "the loading issue". 3. The loading issue 282.By paragraph 9(e)(ii) of the Reply, the plaintiff pleaded that :
283.This plea came about as a result of an amendment dated February 2003. It relates back to paragraphs 16-19 and 25A of the Statement of Claim in which the plaintiff's claim was made that the concrete plinths, gondola posts, additional dog house and openings had not been on the approved plans, had not been approved and were UBWs. To this, the defence had pleaded at paragraphs 30-35 and 45A that there was no risk of enforcement action because, in effect, they were not UBWs, the roof had been designed to withstand their loading and the BD had, on 17 July 1998 (after their exhaustive investigation), confirmed that there had been no breach of the Building Regulations. The Reply therefore pleads that the assertion by the defence, that the roof had been designed to withstand the loading and the assertion by the BD that there had been no breaches, were wrong. If so, it is evidence in support of the plaintiff's contention that the title was defective. 284.The key Building Regulations, which the BD confirmed had been complied with, were Building (Construction) Regulations 4, 5 and 6 :
It is to be noted that Regulation 4(b) refers to "design stresses" not "design load". 285.From the definitions section :
286.Regulation 17 is at the heart of the matter :
287.The appropriate "Class Number" from Table 1 stating the "minimum imposed load" for this case was Class 6 in which the "distributed load to be applied uniformly on plan" was "7.5 kPa" (kPa means kilo Pascoes which is the same as kilo Newtons per square metre. 7.5 kPa is 750 kilograms per square metre). 288.Paragraph 9(e)(ii) of the Reply resulted in three weeks of expert evidence at trial. Dr Sammy Chan and Mr So Kin Shing were the key witnesses. They were both impressive witnesses. Their initial differences of opinion, which could be summarized in a page or two, grew to over 2,000 pages of reports, calculations, diagrams, plans, results and other documents. The court is neither required nor equipped to resolve all the many technical issues which emerged. 289.Having read and re-read the reports, the evidence and the submissions, it is plain that this judgment must be selective in the matters it attempts to deal with. It would be a futile and almost endless task to attempt to deal with every issue about every slab, every item on the roof, every difference of opinion, every round of calculations. To this end, I have decided to refer to almost none of the actual calculations done. My approach, in short, is to decide a small number of key questions of methodology and then, if a particular methodology is acceptable and survives the criticism of it (but not on the basis that the alternative methodology is wrong), to assume that the results which flow from such methodology are also acceptable (provided of course that the arithmetic has been correctly done). This seems to be the only common sense approach to a debate between highly qualified structural engineers in which each accuses the other of many errors of fact, judgment and practice. At various stages both experts made assumptions. I do not believe that either expert made assumptions to deliberately manipulate their results (neither was it suggested that they had). Assumptions are a question of engineering judgment and experience. Once it is accepted that an assumption is consistent with good judgment and based on sound experience, it is then the methodology which must be examined - to see if it is acceptable both at the appraisal and the design stages. One thing that did emerge at the end of all the evidence was that, in complex matters of structural engineering science there is often more than one way to skin a cat. In an attempt to illustrate this, I now summarise the exchange of reports between Dr Chan and Mr So. From this will be seen the starkly contrasting opinions and conclusions, the alleged errors and mistakes each claim the other made and it will serve as a prelude to the following part of this section, a summary of the areas of disagreement. Before doing so, I should record my rejection of the submission made by the plaintiff that Mr So was less than truly independent because of a prior connection with the defendant. I found him to be independent, objective and helpful. Criticisms that an expert "changed his stance" were made by both sides. Such changes were due to the fact that new material and new figures kept being produced, not due to a lack of independence. (A) The exchange of reports 290.The Reply pleads that "one slab and 2 beams were overstressed". One of the reasons for the huge volume of material produced at trial and the length of time spent at trial was that the evidence did not deal solely with the critical slab and beams but with all the slabs upon which plinths chillers and feature posts stood. In fact, the slab at grid lines 13 and 14 on the plans was the critical one. If this one survived scrutiny it would be unnecessary to look further.
291.Dr Chan's 1st report is dated 21 January 2004, Mr So's is dated 9 January 2004. They were exchanged, so neither had seen the other at the time. 292.Dr Chan refers to four slabs and the beams of RBX 10-18. The primary purpose of the report is to give an opinion on whether the particular roof features (plinths, etc.) are UBWs or not. He also deals, briefly at this stage, with the question of whether the roof had been adequately designed to withstand the loading thereon. As a foretaste of things to come he also set out some basic principles of mechanics which loomed larger and larger in subsequent reports. In particular :
293.He then considered the concepts of structural design followed by his assessment of the loading on the roof and the adequacy of the reinforcements and set out his results. The conclusion was that :
294.Mr So's 1st report carried out a structural appraisal (a check of an existing structure) of six slabs to work out the 'uniform distributed load' for each slab. He also carried out more detailed calculations for the 'critical' slab at Grid 13/14. It was the 'critical' slab because it was subject to the highest bending moments and shearing forces under existing loading arrangements. He gave his opinion on the structural design of the roof, his structural appraisal of what was on the roof, and commented on the results of his calculations. It was a fairly long report. The following short extracts are worthy of note :
(Section 3.2.9 of the Code became an important issue in the debate. I do not propose to set it out. It is bread and butter to the structural engineer but somewhat formulaic to the layman. I can consider each expert's use of the section without elaborating on its scientific content.)
295.At this early stage he concluded, inter alia, that the roof had sufficient structural integrity to withstand the existing loading and that no roof slab or roof beam was overstressed. This remained his view notwithstanding his concession that his estimate of "45% extra load" for additional items not specifically weighed was a low estimate. The plaintiff submitted that 60% or more was a more accurate figure. 296.A major difference of methodology was established by this early stage. Dr Chan's results had been produced with the use of a computer programme (referred to hereafter as "SAFE"). Mr So had used the method, which he said and which I accept, was the method generally used by the profession on site (referred to hereafter as "hand calculations"). The expression "hand calculations" does not do the method justice. It has nothing to do with counting with fingers and thumbs. It is the tried and tested method, widely used and very detailed. It produces more conservative results. I shall refer to it later in more detail.
297.These were "supplemental" reports produced and exchanged as a result of the first round. Dr Chan's is dated 1 March 2004, Mr So's 26 February 2004 (the trial had commenced on 2 February). In his 1st report Dr Chan had complained that the defendant had not made available the "load taking off sheets" (showing the detailed breakdown of loading from all features on the roof beams and slabs used in Fugro's structural calculations). He had commented that they were key documents recording the calculations of the loading of the individual components such as the chillers and silencers. He criticized Fugro's original calculation partly on the basis of the absence of these "load taking off" details. 298.In Mr So's supplemental report he carried out detailed loading take off for each of the features. He added, however, that the "loading take off" calculations were "rarely if ever" used in the field and that the alternative method he used in his 1st report (namely making an allowance - he used 45% - for the extra load of ancillary structures) was the normal method. He, again, used hand calculations. He recorded many minor amendments to figures and phraseology in his 1st report. 299.He then explained why, in his opinion, Dr Chan was wrong in relation to eight of the statements he had made. He then listed four pages of 'mistakes' in Dr Chan's report, many of which were matters of detail. His conclusions remained the same, "it is clear that the amount of steel bar required from the results of calculations all fall below that already provided in slab panels." Dr Chan's supplemental report suggested the opposite. "The required quantity of steel bars in the roof slab was found to be more than the quantity of as-constructed steel bars." He similarly expressed his disagreement with a number of statements which he quoted from the defence experts' reports.
300.Dr Chan's was produced on 17 March 2004, the 32nd day of the trial. Mr So's on 25 March 2004. Dr Chan's 3rd report was referred to as his "preferred report". He had done more calculations on the critical slab. He had used both SAFE and hand calculations. He had done them on the basis of both Mr So's loading take off details and his own revised loading details. Mr So's latest calculations were on similar but not identical features. He used SAFE but with different input. The different input at this stage of the report gave rise to an important difference of methodology which I shall refer to later under the heading "Differences between the experts". I shall merely state the differences here. To determine the effective width of a feature (such as a plinth or a feature post), Mr So used "the empirical formula" set out in the Code of Practice at 3.2.9. Dr Chan's preferred method was to input a consistent strip width of one metre for each feature. Ultimately, it will be seen that the "1 metre strip width" method produces a result of insufficient reinforcement, whereas the "effective width" method produces a result of sufficient reinforcement.
301.On day 37, Dr Chan produced more calculations on slab 13/14 using SAFE. Mr So produced calculations on the bending moments on the feature post.
302.Dr Chan submitted his 5th round on day 40 (three short reports). They contain support for his "strip width" stance and amended calculations for slab 13/14. Mr So sought to answer the points made. Mr So did not produce any reports after this one. At all times Mr So had ascertained the appropriate strip width for each concentrated load by using the empirical formula (for purposes of in-put into the SAFE programme). He always came up with an answer that the provision for loading was adequate. Similarly, his preferred methodology of hand calculations, however the loading take off was done, resulted in a sufficiency of the reinforcement as built.
303.These were produced on 31 March, 30 April and 11 May respectively (the court had not sat for three weeks in April). Many more calculations are contained therein, all using SAFE, but with variations of input, such as the figures for live load on pipes and silencers. He also ran the figures through different computer programmes called "SAP 2000" and "GSA" with similar results supporting his conclusions. (B) The main differences between the two experts
304.No one doubts the importance of computers in today's technological age. The question is, however, does the existence of computer programmes, in the field of engineering, make the hand calculation method unreliable and therefore redundant? I am satisfied that the answer to this question is "No". 305.The evidence, which I accept, was that in the construction industry in Hong Kong for calculations such as the ones required in this case, on site, the hand calculation method would be used and not the SAFE programme. The evidence was, which I also accept, that on a day-to-day basis, the SAFE programme is usually only used when the structure and installation of pile caps and transfer plates (similar to pile caps but above ground level) is being calculated. This is because the loading on such structures is huge and very complex. Because hand calculations produce a more conservative result generally, the use of SAFE for major items such as pile caps could result in a considerable saving of steel. 306.There was evidence, which I accept that hand calculations require assumptions to be made, simplifications to be made, engineering judgments to be made. By the very nature of the exercise such assumptions, simplifications and judgments must err on the side of caution, conservatism and safety. Consequently the method will produce a higher bending moment and therefore a more conservative result. The in-built logic and common sense of these propositions commend themselves.
307.Another illustration of different methodologies emerged in the debate concerning concentrated loads on a slab. When doing the hand calculations Mr So or Mr Andes Wong of Fugro, the RSE on site, used different methods in the sense that they made different assumptions about the two particular concentrated loads on a particular slab. Both methods were acceptable to the BD, both methods are used by engineers (although I accept Mr Wong's method is more widely used) and both produce a result which is more conservative than actually necessary for construction purposes (this was Mr So's evidence which I accept). Dr Chan supported Andes Wong's method over Mr So's method on the basis that it produced a narrower effective width and was thus even more conservative. However, in my judgment it was not reasonable to reject Mr So's method. I accept, from Mr So, that his method is more widely used than Dr Chan understood it to be. I accepted this because Mr So's experience of current practice in the industry in Hong Kong was greater. A piece of evidence even suggested that Mr So's method had been used by Dr Chan's own staff. In short, I conclude that Dr Chan's lack of familiarity with Mr So's methodology when using hand calculations for concentrated loads on a slab does not detract from its acceptability as a method. Thus, I am satisfied that, assuming the data and arithmetic were correct when using it, it would produce results that can be relied on, are safe and are acceptable. 308.Of course, this does not mean that computers serve no useful purpose. The case for computers is a strong one. However, experience shows that for the particular task on this particular roof the hand calculation methods survive the attack on them mounted from the 'SAFE' camp. I think it would be surprising to conclude otherwise given that a significant proportion of the roof landscape of Hong Kong remains in place due to hand calculations having been done.
309.SAFE is clearly the most appropriate computer programme for working out the bending moment. That is precisely what it does. From that result the appropriate amount of steel reinforcement is calculated. Being a computer however it will give a different result depending on what data is put in. Mr So favoured the empirical method to calculate the effective width, Dr Chan, the 1-metre strip width. 310.It is a fact that the narrower the figure for the width put into the computer the higher the resulting bending moment will be. 311.Dr Chan informed the court that the use of 1-metre was widely used both in his firm in Hong Kong and, to his knowledge, many others. The use of 1-metre is safer because it results in the use of more steel. It is therefore understandable why it is used at the design stage of a building. It cannot fail. The fact that more steel than is actually necessary may be used is neither here nor there. The question in the present case however is not - would the use of 1-metre be wrong (to which the answer is obviously "No") but, rather is there anything wrong with Mr So's method? In the present case however, the purpose of the exercise is to appraise the existing structure, not to design a new one. 312.The defence case was simple. The empirical formula (from 3.2.9) provides an engineer with the width of the strip which will resist the bending moment created by load. In diagrammatic form it shows the extent by which the effect of the load spreads away from the load itself. What can be wrong, so the submission goes, in using that very width for input into the computer to tell you the bending moment and therefore the amount of steel needed to resist it? The defence say "nothing", either in logic or fact. In support, the opinion of the Director of the "Solutions Research Centre" who marketed the SAFE programme, was sought. Mr John Li confirmed, in writing, that Mr So's method was acceptable. 313.The plaintiff countered this opinion in two ways. Firstly, they submitted that Mr Li's status was little higher than that of a salesman (intending, I am sure, no disrespect to salesmen). Secondly, they produced an email from the USA manufactures of SAFE which said :
314.In truth, neither answer was definitive and both used the expression "we suggest". In terms of expertise there is little to choose between the marketer and the manufacturer. At the end of the day, neither the manufacturer's email nor Dr Chan's evidence persuaded this court that Mr So was wrong. 315.The debate in court went further than covered so far. For example, very late in the evidence the plaintiff, with the leave of the court, introduced results using other programmes (SAPP 2000 and GSA). They produced more results showing the amount of reinforcement was inadequate. They supported Dr Chan but the fact that the results were different from all previous results merely shows that there are more than two ways to skin a cat. It does not change my conclusion that, once again, Mr So's arguments for the effective width being calculated by the empirical formula, survives unscathed the attack on it from the "1-metre strip width" camp. I do not accept the contention made by the plaintiff that it was a "novel" method. In my judgment, at least for appraisal purposes, it was perfectly sound.
316.Because of Hong Kong's regular typhoons making an allowance for loading caused by strong winds blowing on a structure is essential. 317.At trial two particular roof features were at the heart of the "wind loading" issue; firstly, the silencers over the chillers and the steel frame which attached them to the ground and secondly, the posts of the architectural feature - the feature posts. 318.The silencer frame caused considerable confusion at trial. It has six supporting legs (P1-P6). Mr So thought, originally, that all six legs played an equal part in supporting the silencer. It later transpired, however, that because of the actual configuration of the frame, it was the four corner posts which were doing the bulk of the work. It also transpired that the four corner posts did not sit directly on a concrete plinth but rather on a steel cross-beam above the plinth. The cross-beam was connected to the plinth by two short inner legs which were closer together than the corner posts. All this and other matters of more detail emerged as the evidence unfolded, as more and more photographs were taken and as more and more reports and results were produced. In fact, it turned out that the actual frame on the roof was a more rigid structure than Mr So had originally thought. The main criticism of Mr So's 1st report was that he had attributed wind movement to the centre posts when in fact they were not a significant part of the rigid frame. Originally, based on his initial misunderstanding of the configuration, he attributed 50% of the wind force to the two centre posts. He later reduced this to 10-15% when he realized the actual arrangement. The plaintiff argues that because Mr So's evidence changed complexion as it unfolded "one is left with an uneasy feeling that his evidence is unreliable". They also rely on the fact that, of all the different ways in which the adequacy of the steel was appraised, the only one which resulted in a positive finding was "when using Mr So's own novel hand calculation". Consequently, "Dr Chan's contradictory evidence demonstrates convincingly that the risk of reinforcement cannot safely be ignored". 319.I was persuaded that Mr So's revised opinion that the centre posts took 10-15% of the wind factor was a more realistic approach than Dr Chan's who said the percentage should go from 50%, as originally thought, to "virtually nil" based on the actual configuration. In his 3rd report he assigned no loading at all to the two centre posts - an extreme stance. Mr So's less extreme stance resulted in his overall final opinion about the structural integrity due to wind loading on the silencer on top of the chiller being unaffected. I have concluded that this opinion emerged not as unreliable, but as reliable. 320.I apply the same approach to the equally lengthy debate on the wind load affecting the feature post. Dr Chan was asked, by Mr Tong, to do a number of calculations, which he obligingly did in his own time, in relation to the feature post and the columns, which were largely hypothetical, based on three different scenarios. Once again voluminous weighty data was put into the computer and, in the early hours of the morning, results were churned out and wheeled into court the next day. By this type of language I have no wish or intention to dismiss the efforts of the plaintiff's legal team or Dr Chan. The plaintiff's case was conducted with responsibility and industry at all times. What remained untarnished however, in my judgment, was Mr So's calculation of wind loading in his 3rd reports dated 25 March and 29 March. As can be seen from the detailed synopses prefacing both those sets of calculations, they are only concerned with the known facts of figures of the actual situation. Given that Mr So's methodology has not, in the court's opinion, been successfully challenged, then those calculations produce reliable results for the feature post.
321.The remaining areas of dispute, of which there were a number, can be grouped together because they share a common feature ― they are not significant. They are not wholly without significance but they are not sufficiently significant to have a bearing on the ultimate issue of the roof's structural integrity. 322.Firstly, there was disagreement as to what figures should be allowed for the possibility of extra, imposed, loading on what was already there. The reality is that, neither the silencer roof (thin metal) nor the chiller pipes should be stood on. They are not designed for extra loading. Nonetheless, Mr So made an allowance of 0.75 kPa for the pipes. Dr Chan also conceded that for the unoccupied areas on the roof (of which there were few) a figure of 2.0 kPa was more realistic than his original figure of 7.5 kPa. His choice of 7.5 kPa initially was based on the argument that if the whole roof is designed for an imposed loading of 7.5 kPa then that is the figure which should be applied to all unoccupied area as well. This argument did not commend itself because any object in excess of 7.5 kPa in the occupied areas would then cause the overall limit to be exceeded. 323.In any event, the dispute was more academic than real, as were other minor disputes which I do not need to address. 324.The totality of the evidence on this complex issue satisfied me that the reinforcement of the critical slab and beams was sufficient, therefore the reinforcement everywhere else on the roof was sufficient and consequently the roof as built was structurally adequate. (C) The final decision on loading 325.I acknowledge that much of the preceding findings in (A) and (B) of this part of this section relate to the actual adequacy of the roof. Mr Tong submits the entire issue should be addressed by consideration of the following three separate issues :
326.He submits the answers to the initial questions in (a), (b) and (c) are "No", "Yes" and "Yes". If so, he submits, title would be defective because of a serious risk of enforcement proceedings. He submits they are self-contained issues and that question (c) is of the smallest relevance in spite of the enormous amount of time that was spent on it. I do not see them as separate issues. The defendant did not design one roof and then build another, what was built was what had been designed; what was approved by the BD was what was built. 327.The roof came within Clause 6 of the Table referred to in Regulation 17. The roof to be designed and built had to withstand a minimum imposed load of 7.5 kPa. It must be relevant to look at what it was that the BD actually approved. It was agreed that in order to achieve the minimum requirement (7.5 kPa) 736 mm2 of steel had to be put in. In fact 1 028 mm2 was put in (almost 40% more than what was required for 7.5kPa) to the slabs. For the beams, 3 125 mm2 would be required to achieve the minimum. In fact 4 050 mm2 (almost 30% extra) was put in. The only relevant comparison must be to compare what was actually put on the roof with what the roof was actually designed to take on the plans. To make this comparison we must bear in mind two particular words in the Regulations. Regulation 4(b) states that the design stresses should not be exceeded. It is an instruction to those responsible for building the structure. It is not the same as the minimum imposed load under Regulation 17. Regulation 17 starts with the words "The imposed load ... shall be the greatest applied load likely to arise from the intended use ...". The proper approach to the problem seems to me to be as described in evidence by Mr Henry Lau, a defence expert, which I quote :
328."Design stress" in Regulation 4 is not the same as "design load". Design stress refers to the amount of stress the roof can actually take. Fugro's figures demonstrate what the design stress of the roof was. It was greater than 7.5 kPa. I conclude therefore that this was the reason that the BD were content that Regulation 4 had not been breached. In Regulation 6, applying the same interpretation, the "proper bearing capacity" is a reference to the amount that the roof can actually take. 329.In all the circumstance, I find there to have been no infringements to Regulations 4 to 6 or Regulation 17. The risk of enforcement proceedings has not been established. The possibility of a risk has been rebutted by the defence. There was no defect in title. SECTION D 330.The method for payment of the Hotel upon Completion is set out in the sale and purchase agreement. In short, it provides that Mariner (Sino's corporate vehicle for making the purchase) would purchase the issued share capital of Crest plus a debt owed by Ocean/Crest to Atlas (Hang Lung's corporate vehicle for making the sale). The commercial reality of the transaction was that Sino agreed to acquire the Hotel at a cost of HK$1.07 billion. The debt which was due to be assigned was defined as being "approximately HK$670 million". 331.The relevant parts of the agreement which concern this issue are :
332.In short, Hang Lung contend that Sino's only real commercial concerns stemming from the financial arrangement could be either that there were hidden liabilities due from Crest/Ocean to third parties or that Crest/Ocean still had debts, after Completion to other Hang Lung group companies. Hang Lung say that Sino were completely protected because of the above conditions and terms that :
333.Sino's pleaded case is all embracing. They plead breaches of both conditions and terms and also of implied terms. There are four allegations of breach of conditions and terms. I set out the four alleged breaches (without their particulars at this stage) :
334.The alleged implied terms are pleaded as follows :
335.The alleged breach of the implied terms, with particulars, is pleaded as follows :
PARTICULARS
336.Although, in their final submissions Sino made no submissions orally or in their written "closing submissions" about the management accounts or the underlying accounting records of Ocean and Crest, a short reference is made to them in their written reply submissions. I will however deal with them briefly at the conclusion of this Section. I will firstly concentrate on paragraphs 28(a) and (b), 14 and 30. 337.As far as "the debt" is concerned Sino puts its case as follows. The defendant says "the debt" is that recorded in Ocean's general ledger as monies due to Atlas as at 30 June 1998 as follows :
338.Sino complain that, apart from the $20 million "working capital advance" none of these entries were true "loans" to Ocean. The $471 million, $140 million and $1.8 million were sums paid by Hang Lung for the construction of the Hotel in the name of Ocean. It is submitted that the absence of any written loan agreements containing, for example, the usual payment of interest means they cannot constitute a "debt" within the meaning of the sale and purchase agreement. 339.The $75 million represents debts owed by Ocean to third parties. Sino complain that they do not know who the creditors are and there is no documentation or detailed breakdown in respect of it. They go on to say that as Clause 4.03(a) was a promise to discharge "any liability other than the debt" and as the $75 million was included as part of the debt, Clause 4.03(a) did not bite in respect of the $75 million. Thus there would be no good title to the $75 million to enable it to be assigned to Mariner free from adverse claims. 340.The $20 million was a cash payment to be paid by the defendant and available to the plaintiff as a contribution towards starting up expenses in running the Hotel. Sino complain that there is no evidence as to who advanced it, Atlas being a BVI company with no assets. 341.In short, Sino contend that the proposed assignment could not work. They contend that the defendant has not proved there was a debt of approximately $670 million, as defined, which Atlas would assign to Mariner on Completion. 342.The plaintiff's next ground of complaint is that the defence have failed to discharge the burden on them to prove that it was both the legal and the beneficial owner of the debt "free from encumbrances etc." They submit that this cannot be proved because Atlas cannot prove that no other party can make a claim for part of the debt against Ocean. In support of this they complain of a lack of board minutes that other Hang Lung companies had approved the passing of the debt to Hang Lung Development and then to Atlas; they complain that the only evidence there was, journal vouchers, had been merely 'approved' by William Ko, a non-director; they complain again of a lack of documentation of loans and no documentation from the third party creditors of the $75 million that they agreed to forgive the debt in favour of Atlas. For all these reasons it is said that Atlas were unable to assign, at law or in equity, the debt of $709 million in favour of Mariner. 343.The third complaint concerns a matter of BVI law, Atlas being a BVI company. The plaintiff makes the point that Atlas had not obtained the approval of its shareholders to the disposal of the debt as required under BVI legislation. 344.Section 80 of its International Business Companies Act 1984 states :
345.Thus, section 80 requires a disposal of over 50% of a BVI company's assets to be approved by a shareholder's resolution. The methods of such a resolution is defined. It envisages a formal procedure. 346.In my judgment, Hang Lung's answers to all the above allegations of breach of conditions and implied terms are based on sound commercial law, practice and common sense. 347.Given the agreed method of purchasing the Hotel Sino would want to be sure that any other outstanding liabilities under the construction contracts would be met by Atlas/Hang Lung. 348.Clauses 4.03(a) and 5.09 and Warranties 2 (set out above) and 5(c) allay this concern. 5(c) states :
349.Before I deal with the analysis of "the debt" and Hang Lung's answers to Sino's case in respect of it, I should deal, as a preliminary point, with Sino's reliance on an implied term at paragraph 14(c) supra. The implied term suggests there was a burden of proof on the defendant to prove the existence of the debt, that it was capable of being assigned and was free from encumbrances etc. and would be assigned without the consent of any third parties. 350.The implied term has the effect of reversing the burden of proof. Under the contract the defendant had agreed to sell the debt free from all encumbrances etc. and had warranted that it was due and owing by Ocean, repayable on demand and assigned by the vendor without the consent of any third party (Warranty 10) :
351.The implied terms goes further in that it seeks to impose on the defendant an obligation not merely to keep his promise but also to prove title to the debt. Had the parties wanted to include an express provision to prove title to the debt they could have easily done so (as they did in respect of title to the property) but they did not. Should it be part of the plaintiff's case that the debt was not repayable on demand, for example, it is for them to prove it. THE DEBT 352.I now deal with Sino's claims in paragraph 28. (1) In so far as the defendant was not able to sell the debt to the plaintiff because :
353.The whole picture is one of a common practice in large companies such as the Hang Lung Group where one company within the group is the treasury company which makes payments on the subsidiary's behalf and later charge them back. Mr Carlson Tong, Hang Lung's expert concluded as such :
354.As to this allegation the opinion of Mr Carlson Tong, which I accept, is as follows :
355.In his oral evidence, he answered the point as follows :
356.It is also the fact that all journal and payment vouchers in respect of the construction costs were apparently signed or initialled by authorised persons to approve the payments. 357.For the sake of completeness, I refer to the evidence of Ms Velencia Lee, Hang Lung's Senior Corporate Finance Manager who said :
358.Sino's expert Mr Roger Best, in cross-examination, when asked about this said :
359.The expert accountants agreed that "the books of account of Ocean do show that the debt was transferred to Atlas" and that (a point already made) :
360.The suggestion, made by Sino, that in spite of all this, there is no proof that the assignment was not legally valid is misplaced.
361.The several reasons advanced by Mr Thomas on Hang Lung's behalf, both individually and collectively, demonstrate that this was a point not worth taking. 362.The court had the advantage of considering written opinions on the subject from Mr Arthur Eldridge for Sino and Mr Michael Riegels QC for Hang Lung. 363.Mr Eldridge's position was that section 80 had to be strictly complied with as a matter of procedure. He opined that the failure to follow the procedure in section 80 could not be saved by section 10 of the same Act. 364.Section 10 provides as follows :
365.Mr Eldridge concedes that whether section 80 is purely procedural is a moot point but nonetheless opines that it is. I am satisfied that the preferable view is that section 10 does save the breach of section 80. The purpose of section 10 is to save transactions such as this one where there has been a technical procedural irregularity. 366.Such a common sense view is enforced by an analysis of what the alleged irregularity is. It is arguably not even technical but non-existent. The fact that Hang Lung was a party to and a signatory of the agreement and guarantees Atlas's performance under it and warranted that the debt could be assigned as stipulated is sufficient to show that Hang Lung did approve and consent to the assignment. 367.Undeniably true also is the fact that, even if it were necessary for Hang Lung to get a signature on a written resolution of approval it could have been done at any time on 30 June 1998. Mr Eldridge agreed that it could have been done by the stroke of a pen. However, Sino's letter repudiating the contract came in at 10.12 a.m. Theoretically Hang Lung might have complied with section 80 at any time later in the day. 368.Finally, what actually constitutes a "written resolution" is not defined. It is at least arguable that the agreement itself would suffice as evidence of approval. (2) The accounting records of Ocean did not show that the debt ... was "repayable upon demand" 369.I am content that there is ample evidence of this, already referred to. THE $75 MILLION 370.Mr Roger Best expressed "reservations" about the $75 million as an accounting expert of the highest calibre. However, without setting out the different opinions about the $75 million I think it can be dealt with by a "bottom line" point made by Hang Lung. At Sino's insistence the debt was defined as :
371.Thus, at the date of completion it might be a different figure. If the $75 million was not part of the debt, the debt figure would be reduced by $75 million and the $75 million would then be discharged by Atlas on Ocean's behalf under the terms of the contract. MANAGEMENT ACCOUNTS (PARAGRAPH 28(C)) AND ACCOUNTING RECORDS (PARAGRAPH 28(D)) 372.As Sino did not pursue these claims with any vigour in their final submissions, I shall deal with them generally and briefly. Management accounts 373.Atlas warranted that Ocean/Crest's management accounts (as defined in the agreement) would give a "true and fair view" of their financial position. The usual understandings of "true and fair" is that the accounts have been prepared in accordance with "SSAP" (Statement of Standard Accounting Practice) in Hong Kong. 374.In so far as Atlas may have fallen short of SSAP I regard non-compliance as of no consequence in this case due to the following matters. 375.Crest was a BVI company and arguably not governed by SSAP. Management accounts, as opposed to audited accounts, also arguably, do not have to comply strictly with SSAP. The experts joint memorandum stated as such :
376.More telling is Sino's conduct in relation to these accounts. The necessary accounts were given to them when the contract was signed in December 1996. Complaints about their shortcomings did not see the light of day until the 11th hour in June 1998 when the fault finding exercise was in full swing. Accounting Records 377.By Warranty 4(c) Atlas warranted that the Ocean/Crest accounting records "have been kept on a proper basis ... in accordance with generally accepted accounting practices and are up to date ...". 378.There are breaches under this paragraph of the Statement of Claim (28(d)) but they are not serious breaches. They are not repudiatory in nature and need not have been of concern to Sino. 379.Under 28(d)(i), the accounting records were indeed kept on a cash basis. 380.Under 28(d)(ii), there was not a separate fixed assets register. However there was no strict requirement for one. 381.Under 28(d)(iii) Mr Carlson Tong's analysis is acceptable :
382.Under paragraph 28(d)(iv), the complaint has already been answered under paragraph 28(a)(ii). 383.Under 28(d)(v) the complaint has some validity to the extent of the experts' agreement in their joint memorandum :
384.Paragraph 28(d)(vi) was not pursued. 385.For all the above reasons Sino has not succeeded in establishing that Hang Lung was in repudiatory breach on any ground under what were described at trial as "the accountancy issues". SECTION E INSPECTION AND DISCLOSURE 386.This issue is dealt with as a separate section although it does not merit it. It does not merit separate consideration for two reasons : first, because the inspection issue is part of Sections B and C (in the sense that the plaintiff complains that their attempts to inspect the hotels and the roof were hampered) and the disclosure issue relates to financial documents in Section D. Secondly, because the plaintiff's case is that this issue "contributed" to the defendant's repudiation of the agreement. As such, it is not a self-contained allegation. (a) The contract and the pleadings 387.Clause 6.03 of the agreement deals with inspection of the Hotel and states :
388.Clause 6.02 deals with documents and states :
389.The plaintiff pleads that the defendant is in breach of these provisions as follows :
390.In addition, they plead an implied terms relating to the GPH.
391.This issue largely turns on the evidence from witnesses as to fact. Before dealing briefly with the factual issues it is important to be reminded of the context. As the dispute heated up, so the atmosphere became more frosty. The time from which most of the plaintiff's complaints on this issue stem is when both parties were standing by their rights and obligations as per the letter of the agreement. The spirit of the agreement, insofar as it anticipated good will and co-operation, no longer applied. (b) Facts relied on by the defendant 392.In answer to the complaints, the defence relies on the following facts which were borne out by the evidence. In chronological order :
393.The plaintiff, on the other hand, points to evidence of some obstructiveness, having to ask for things more than once and lack of co-operation. In truth, it seems that both sides were, at times, being difficult. In the final 10 days there was an onslaught by the plaintiff which the defendant resisted as much as possible by insisting on compliance with the contract which they interpreted defensively. 394.In my judgment, the conduct of the defendant, on analysis, is neither repudiatory nor "contributory" repudiation. I do not think the plaintiff's case, or the preparation for it, suffered as a result. Although, in many respects there were unsavoury aspects to the events of that particular time, I can discern neither breach by the defendant nor loss by the plaintiff. CONCLUSION 395.With the leave of the court and with the consent of the parties, the entire trial was limited to a single question of overall liability, namely whether Sino or Hang Lung repudiated the December 1996 Agreement. I find that it was Sino and accordingly there will be judgment for the defendant. I appreciate that there are ancillary costs issues outstanding. At this stage I merely make a costs order nisi for the costs of and occasioned by the trial in favour of the defendant.
Representation: Mr John Blackburn QC, Mr Ronny Tong QC, SC, Mr Danny Choi and Miss Yvonne Cheng, instructed by Messrs Deacons, for the Plaintiff (and the Defendants in Counterclaim) Mr Neville Thomas QC, Mr Edward Chan QC, SC and Mr Anderson Chow SC, instructed by Messrs Johnson Stokes & Master, for the Defendants (and the Plaintiff in Counterclaim) Appeal by the Plaintiff to the Court of Appeal. Appeal dismissed. Please refer to CACV291/2004 dated 30 December 2005. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Cases cited in this judgment
Further hearings and rulings under CACV 291/2004