Tin Shui Wai Development Ltd v. Yiu Sun Hung

DCCJ 569/2003

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 569 OF 2003

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BETWEEN

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Coram:  His Honour Judge L. Chan in Chambers

Dates of Hearing:  13 to 15 April, 2004

Date of Handing down Judgment:  17 December 2004

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JUDGMENT

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1.This is an application by the plaintiff to strike out the Defence and Counterclaim of the defendant under Order 18 rule 19 of the Rules of the District Court. 

2.In 1985, the government granted the plaintiff seven lots of land in Tin Shui Wai designated as TSWTL No. 1 to 7.  They were to be developed in stages and to be known as Kingswood Villas.  Lot No. 6 was to be developed as Maywood Court.  Under clause 16(a)(iii) of the conditions of grant (“the Grant”), the plaintiff was restrained from disposing of or entering into any agreement to dispose of any part of the lot until the conditions of grant had been complied with to the satisfaction of the Director of Lands save as provided in clause 16(b) of the Grant.  The relevant parts of the two clauses stated as follows:

“(16)	(a)	Save as provided in sub-clause (b) of this Special Condition, the Grantee shall not assign, mortgage, …… or dispose of the lot or any part thereof …… or enter into any agreement to do any of the things before mentioned: -
		(iii)	until these Conditions have been complied with to the satisfaction of the Director and the Registrar General (Land) Officer.
	(b)	The Grantee may before these Conditions have been complied with to the satisfaction of the Director: -
		(ii)	upon obtaining the prior written consent of the Registrar General (Land Officer) and subject to such terms and conditions (including the payment of such fee) as he may see fit, enter into agreements for the sale and purchase of undivided shares in the whole of the lot or a section or sections thereof together with the right to the exclusive use and occupation of a part or parts of the building erected or to be erected thereon ……
		(iv)	upon obtaining the prior written consent of the Registrar General (Land Officer) and subject to such terms and conditions including payment of such fee) as he may see fit, dispose of any part or parts of the lot save in so far as ultimate responsibility for the development of such part or parts in accordance with these Conditions shall rest with the Grantee ……”

3.In March, 1997, the plaintiff obtained the requisite consent to enter into agreements for the sale of parts or shares of Lot No. 6 together with exclusive right to occupy the residential units and car parks in Maywood Court.  By an agreement of sale and purchase dated 16 April, 1997 (“the Agreement”), the plaintiff agreed to sell and the defendant agreed to purchase Flat E on the 6^th Floor of Block 3 of Maywood Court (“the Property”).  In entering into the Agreement, both the plaintiff and the defendant were represented by Woo, Kwan, Lee & Lo, the third party herein.  The purchase price for the Property was HK$2,958,000.  The defendant paid 30% as deposits and part payment.  The remaining 70% or HK$2,070,600 was payable within three months of the defendant being notified in writing that the plaintiff was in a position validly to assign the Property to the defendant.  However, the defendant was entitled to call for the conveyance of the Property within 14 days from the notification.  Clauses 4, 5 and 16 of the Agreement are relevant to this action and their relevant parts are as follows:

“4.	(1)	The Vendor shall: -
		(a)	continue the construction of the Development with all due expedition;
		(b)	comply with the requirements of the Building Authority and of any other relevant Government authority relating to the Development; and
		(c)	complete the Development in all respects in compliance with the conditions of the Government Grant and the building plans on or before the 31st day of December 1997 subject to such extensions of time as may be granted by the Authorized Person in accordance with sub-clause (5)(a).
	(4)	(a)	Subject to sub-clause (4)(b), if the Vendor fails to complete the Development by the date specified in sub-clause (1)(c) ……, the Purchaser shall be at liberty by notice in writing to the Vendor to rescind this Agreement and upon service of such notice, this Agreement shall be rescinded within 7 days thereafter and the Vendor shall repay to the Purchaser all amounts paid by the Purchaser hereunder together with interest thereon at the rate of 2% per annum above the prime rate specified by The Hongkong and Shanghai Banking Corporation Limited from time to time from the date or dates on which such amounts were paid up to the date of repayment, the payment of such amounts and interest to be in full and final settlement of all claims by the Purchaser against the Vendor hereunder.
		(b)	If the Purchaser does not rescind this Agreement under sub-clause (4)(a) within 28 days from the date specified in sub-clause (1)(c) ……, he shall be deemed, without prejudice to his rights under sub-clause (4)(c) hereof, to have elected to wait for completion of the Development.  In such event the Vendor shall pay to the Purchaser interest at the rate of 2% per annum above the prime rate specified by The Hongkong and Shanghai Banking Corporation Limited from time to time on all amounts paid under this Agreement from the date following the date …… specified in sub-clause (1)(c) …… up to the date of completion of the development.  Such interest shall be paid or allowed as a credit to the Purchaser in respect of the purchase price on completion of the sale and purchase.
		(c)	If the Development is not completed in accordance with the building plans and the other provisions of this Agreement within a period of 6 months from the date specified in sub-clause (1)(c) or any extended date under sub-clause (5), the Purchaser shall be at liberty either to rescind this Agreement in which event the provisions of sub-clause (4)(a) relating to repayment and interest shall apply or to await the completion of the Development in which event the provisions of this sub-clause (4)(b) relating to the payment of interest shall apply.
	(6)	The vendor shall apply in writing for a Certificate of Compliance or the consent of the Director of Lands to assign in respect of the Development within 14 days of his having completed the Development as stipulated in sub-clause (1)(c) above.
	(7)	For the purpose of this clause the issue of a Certificate of Compliance or consent to assign by the Director of Lands shall be conclusive evidence that the Development has been completed or is deemed to be completed as the case may be and nothing in this sub-clause shall preclude the Vendor from proving that it has complied with sub-clause (1)(c) above by any other means.
5.	(1)	The Vendor shall notify the Purchaser in writing that he is in a position validly to assign the Property within one month of the issue of the Certificate of Compliance or the consent of the Director of Lands to assign, whichever shall first happen.
	(2)	The sale and purchase shall be completed at the offices of Messrs. Woo, Kwan, Lee & Lo during office hours within 14 days of the date of the notification to the Purchaser that the Vendor is in a position validly to assign the Property to the Purchaser.
16.	(1)	Should the Purchaser fail to observe or comply with any of the terms and conditions herein contained or to make the payments in accordance with Schedule 4 or any interest payable hereunder within 7 days of the date, the Vendor may (subject to Clause 3(3)) give to the Purchaser notice in writing calling upon the Purchaser to make good his default.  In the event of the Purchaser failing within 21 days from the date of such notice fully to make good his default, the Vendor may by a further notice in writing forthwith determine this Agreement.”

4.The effect of clauses 4(4)(a) and 4(4)(b) of the Agreement is that if the plaintiff should fail to complete the development by 31 December, 1997, the defendant would have 28 days to rescind the Agreement and get back the deposits and part payment with interest.  If the defendant did not rescind within the 28 days, she would be deemed to have elected to wait for the completion.  If the plaintiff should still fail to complete the development within the next 6 months after 31^st December, 1997, the defendant would have another option under clause 4(4)(c) to rescind the Agreement and get back the payments with interest or to continue to wait for completion. 

5.On 22 December, 1997, the Building Authority issued the plaintiff with an occupation permit that covered Blocks 1 to 8 of Maywood Court which included the Property.  On 23^rd December, 1997, the plaintiff through the third party applied to the Director of Lands for consent to assign.  On 26 March, 1998, the District Lands Officer, Yuen Long wrote to the third party on this application and referred to a site visit on 6 March, 1998 which revealed that the construction works for the kindergarten, external and internal finishing of the residential blocks, ancillary facilities including tennis and basketball courts and swimming pool and landscaping were outstanding.  The plaintiff on 4 June, 1998 gave the government an undertaking to complete on or before 30 September, 1998 some minor external finishing works, minor landscaping works and minor internal finishing works at the common area of the lot which were acknowledged to be outstanding.  Pursuant to the undertaking, the plaintiff also gave the government a bond issued by the Bank of East Asia for HK$55,000,000 to secure the plaintiff’s performance of the undertaking.  On 17 June, 1998, the Director of Lands issued to the plaintiff a consent to assign pursuant to clause 16(b)(iv) of the Grant. 

6.Under clause 5 of the Agreement, the plaintiff was obliged to notify the defendant within one month after the issue of the consent to assign that it was in a position to validly assign the Property to her.  The plaintiff should also complete the assignment at the office of the third party within 14 days of such notification.  The third party on behalf of the plaintiff by letter of 30 June, 1998 notified the defendant that the plaintiff was in a position to validly assign the Property to her and asked her to complete the purchase within 14 days.  By another letter of the same date but issued by Kingswood Property Services Ltd. on behalf of the plaintiff, the completion date was extended to on or before 30 September, 1998.  The defendant did not respond to these two letters and did nothing.  The third party on behalf of the plaintiff wrote to the defendant on 9 October, 1998 pursuant to clause 16(1) of the Agreement giving her another 21 days to pay the balance of the purchase price and to complete the purchase.  The defendant again did not respond to this letter.  On 3^rd November, 1998, the third party on behalf of the plaintiff gave the defendant notice to determine the Agreement under clause 16(2) thereof.  The plaintiff then resold the Property on 8 December, 1998 at a smaller price of HK$1,528,000. 

The action

7.On 29 January, 2003, the plaintiff instituted this action against the defendant payment of HK$549,920 plus interest of HK$22,918.42 or alternatively HK$555,295.  These sums were arrived at after giving credit to the defendant for the deposits and part payment.  The defendant issued a third party notice on 25 April, 2003 and filed and served her defence and counterclaim on 2 May, 2003.  The plaintiff then issued a summons under Order 18 rule 19 of the Rules of the District Court to strike out the defence and counterclaim on the grounds that it discloses no reasonable cause of defence; it is scandalous, frivolous and/or vexatious; it may prejudice, embarrass or delay the fair trial of the action; and/or it is otherwise an abuse of process of the court. 

Defence and counterclaim

8.By her defence and counterclaim, the defendant pleaded that the purchase of the Property was subject to the “consent scheme” which was established to protect members of the public who purchase uncompleted flats.  Under this scheme, the plaintiff, as the vendor of uncompleted flats, was required to incorporate certain standard terms into the Agreement.  She therefore pleaded that in order to enable her to exercise her rights of rescission given to her by clause 4 of the Agreement meaningfully pursuant to the purpose and intent of the consent scheme, there was an implied term that the plaintiff was obliged to answer her questions or requisitions concerning whether the development had in fact been completed in accordance with clause 4(1)(c) of the Agreement on or before 31^st December, 1997.  Mr. Lee S. C. in the course of submissions clarified that the implied term did not require the plaintiff to answer requisitions as such, but it required the plaintiff to answer questions concerning whether the development had in fact been completed by 31^st December, 1997.  Mr. Lee confirmed that the defendant’s case was not built on requisition.  

9.The defendant further pleaded that she had made two enquiries with the  staff of the plaintiff and of the third party.  The first one was in about late 1997 when she enquired with the plaintiff’s staff at the plaintiff’s office on when the Property would be delivered to her for her use.  The plaintiff’s staff told her to the effect that the Property would soon be ready for delivery to her.  She made the same enquiry again in about early January, 1998 with the staff of the third party.  She was told to the effect that possession of the Property was ready for delivery to her and she was asked her to wait for further notice.  Acting on the faith of these representations, she did not exercise her rights under clause 4(4)(a) of the Agreement. 

10.The defence and counterclaim goes on to say that after she was served with the writ of summons, she discovered that the plaintiff had not completed the development in accordance with clause 4(1)(c) on or before 31^st December, 1997.  There were some documents which suggested that works in connection with the development had not been completed even by 4 June, 1998.  She also pleaded the undisputed fact that the plaintiff could only deliver possession of the Property to her sometime in July, 1998.  She then pleaded that the plaintiff had breached the implied term by failing to answer her questions concerning whether the development had been completed in accordance with clause 4(1)(c) by 31^st December, 1997.  She also accepted the plaintiff’s breach of the Agreement and/or rescinded the Agreement by the filing of her defence and counterclaim.

10.               She further pleaded that by reason of the plaintiff’s breach of the implied term and/or its failure to complete the development in accordance with clause 4(1)(c) on or before 31^st December, 1997, the plaintiff was not ready or able to complete the sale and purchase of the Property and was not entitled to serve any notice under clause 5(2) or 16(1) for completion.  She also pleaded that during the period of delay, the property market had suffered a severe downturn and it was unfair and inequitable for the plaintiff to insist that the defendant should complete the purchase of the Property and to pay the balance of the purchase price. 

11.In addition, she also pleaded a misrepresentation by the plaintiff’s agent on about 14 April, 1997 which induced her to enter into the Agreement, an averment that the two representations made at the end of 1997 and early January, 1998 were fraudulent, or, as an alternative to fraud, these representations entitled her to rely on section 2 of the Misrepresentation Ordinance for relief in the Counterclaim.  These averments were however abandoned by Mr. Lee in the course of submissions. 

Evidence on misrepresentation

12.The defendant filed an affirmation on 30 January, 2004 to oppose the plaintiff’s application to strike out.  She referred to the two enquiries and related matters as follows:

“7.   In late 1997, property prices in Hong Kong began to fall.  I was anxious to know when the Property would be completed.  This is because the sooner it was completed, the better the chance I could get a bank mortgage loan before the value of the Property fell further.  If the value of the Property fell further, I would not be able to obtain a sufficient mortgage loan to pay the balance of the purchase price.  I had no other means of raising funds to complete the purchase.

8.    A few days before Christmas of 1997, I personally went to the plaintiff’s sales office at 11^th Floor, Pioneer Centre, 750 Nathan Road, Kowloon, Hong Kong.  There I explained my situation to the staff of the plaintiff and asked them when possession of the Property could be delivered to me.  The staff assured me that the Property would soon be ready for delivery to me. 

9.    In early January, 1998, I telephoned Woo, Kwan, Lee & Lo’s office.  I asked to talk to the person who was responsible to handle the sale and purchase of Maywood Court flat.  I was connected to the responsible staff.  I told the staff that I was a purchaser of a Maywood Court flat and asked for the timing of delivery of possession of the Property to me.  The staff said that the Property was ready for delivery to me and told me to wait for further notice.

10.  It was only in early July 1998 that I received Woo, Kwan, Lee & Lo’s letter dated 30^th June, 1998 giving me notice to complete the purchase of the Property.  By that time property prices had fallen so much that there was no way I could obtain a mortgage loan which was sufficient for paying the balance of the purchase price.

11.  In about February, 2003, I received the writ of summons of this action.  Having sought advice of my solicitors, I was explained the relevant terms of the Agreement, in particular sub-clause 4(1)(c) and sub-clause 4(4)(a) …

18.  When I made enquiry with the plaintiff and Woo, Kwan, Lee & Lo respectively in late December 1997 and early January 1998, the answers I got gave me the impression that the construction of the development had already been completed.  During all the time thereafter when I was waiting for further notice from the plaintiff and Woo, Kwan. Lee & Lo, neither of them notify me that the construction of the development was in fact not completed on or before 31^st December 1997 despite the fact that they knew from my enquiry that I wanted them to inform me of the progress of the development. 

19.  Had I not been told in late December 1997 and again in early January 1998 that the Property would soon be ready for delivery to me, I would have made further enquiry at that time.  I would then have found out much earlier my right under sub-clause 4(4)(a) of the Agreement as well as the consequence under sub-clause 4(4)(b) of not exercising that right.  I certainly would have exercised that right in time rather than run the risk of the property market falling further and hence not being able to obtain bank mortgage loan to complete the purchase.”

Defendant’s further point

13.In addition to the above points, Mr. Lee and Mr. Cheung in their supplemental submission for the defendant also raised the point that the meaning of the words “in a position to validly assign” in clause 5 of the Agreement should mean not only the plaintiff’s ability to give a good title to the Property, but also its ability to convey a physically completed flat to the defendant.  They submitted that the consent to assign only had a deeming effect for clause 4 and not clause 5.  Thus for the purpose of clause 5, the consent to assign was no proof that the Property was completed and was in a physical position to be delivered to the defendant pursuant to and in performance of the Agreement.  They further relied on the plaintiff’s undertaking to the government and the bond issued by the Bank of East Asia as evidence that the Property had not been completed on 4 June, 1998 and thus inferred that it was not completed by 30 June, 1998.   

14.The defendant’s oral submissions visited an even larger territory than that covered by the defence and counterclaim and the supplemental submission.  At my request, Mr. Lee and Mr. Cheung very helpfully provided me with a summary of the defendant’s submissions after the conclusion of their oral submissions. 

Summary of defendant’s submissions

15.The summary firstly referred to the implied term and the alleged breach of it as pleaded in the defence and counterclaim and referred to above.  It then sought to rely on the prevent principle which was explained in detail and applied by the Court of Final Appeal in Kensland Realty Ltd. v. Whale View Investment Ltd. [2002] 1 HKLRD 87.  The summary stated that the plaintiff had given wrong answers to the defendant’s enquiries and committed a breach of the implied term.  This caused the defendant not to exercise her right to rescind under clause 4(4)(a) and thus kept the Agreement alive with dire consequence to the defendant but advantages to the plaintiff.  The prevention principle should prevent the plaintiff from benefiting itself from its own wrong and thereby exonerate the defendant from such consequence.  This principle should apply regardless whether there was the implied term.  The third point was the misrepresentation of fact by the plaintiff in its answers to the defendant’s enquiries.  It was said that this plea could operate independently of the implied term or the prevention principle.  By itself, it would give the defendant the right to damages.  If the defendant should succeed on any one of these three points, she would be entitled to a set-off and a counterclaim for damages. 

16.The summary then said that the notice to complete issued by the third party on 30 June, 1998 was bad.  It provided two arguments.  The first argument was that under clause 4(6) of the Agreement, the plaintiff was only entitled to apply for the consent to assign when the development had been completed in all respects in compliance with the conditions of grant.  The application for consent to assign submitted by the third party on behalf of the plaintiff on 23^rd December, 1997 was thus an invalid application.  Thus, the plaintiff could not rely on the consent issued by the Director of Lands on 17 June, 1998 so as to have the benefit of the deeming provision in clause 4(7).  Hence, when the notice to complete was issued on 30 June, 1998, the development had not been completed or deemed to be completed.  The notice to complete was thus invalid pursuant to clause 5(1) of the Agreement. 

17.The second argument was that the deeming effect of the consent to assign pursuant to clause 4(7) only applied to clause 4 and not clause 5.  The consent to assign could not prove for the purpose of clause 5 that the plaintiff was “in a position validly to assign” on 30 June, 1998.  When the notice to complete was issued on 30 June, 1998, the development had not been completed.  The notice was thus bad. 

18.If the notice was bad, the plaintiff could not have by notice of 3 November, 1998 determined the Agreement.  That was a repudiation of the Agreement.  The subsequent resale of the Property brought the Agreement to an end and the defendant was entitled to have her deposit back. 

19.Before going further, I should mention that Deputy High Court Judge Longley had in Yau Chin Kwan and Yuen Suk Kuen v. Tin Shui Wai Development Ltd. HCA 11520 of 1999 struck out various parts of a statement of claim by a purchaser of another flat in this development.  That action was based on an agreement for sale and purchase which was materially the same as the Agreement in this action.  The plaintiffs in that case appealed to the court of Appeal and the appeal was dismissed in Yau Chin Kwan and Yuen Suk Kuen v. Tin Shui Wai Development Ltd. CACV 3970 of 2001.  A number of matters discussed in the two judgments are relevant to the present application and I shall refer to them below when appropriate. 

Implied term

20.The law on when a term can be implied into a contract has been summarized by Lord Simon in B. P. Refinery (Westernport) Pty Ltd. v. President and Councillors and Ratepayers of Shire of Hastings (1978) 52 ALJR 20 (PC) at 26E:

“Their Lordships do not think it necessary to review exhaustively the authorities on the implication of a term in a contract which the parties have not thought fit to express.  In their view, for a term to be implied, the following conditions (which may overlap) must be satisfied: (1) it must be reasonable and equitable; (2) it must be necessary to give business efficacy to the contract, so that no term will be implied if the contract is effective without it; (3) it must be so obvious that “it goes without saying”; (4) it must be capable of clear expression; (5) it must not contradict any express term of the contract.” 

21.I also refer to the earlier judgment of the House of Lords in Trollope & Colls Ltd. v. North West Metropolitan Regional Hospital Board [1973] 1 W. L. R. 601 where Lord Pearson at 606 referred to the judgment of Scrutton, L.J. in Reigate v. Union Manufacturing Co. (Manufacturing Co. (Ramsbottom) Ltd. [1918]1 K. B. 592 at 605:

“A term can only be implied if it is necessary in the business sense to give efficacy to the contract; that is, if it is such a term that it can confidently be said that if at the time the contract was being negotiated some one had said to the parties, ‘What will happen in such a case,’ they would both have replied, ‘Of course, so and so will happen; we did not trouble to say that; it is far too clear.’  Unless the court comes to some such conclusion as that, it ought not to imply a term which the parties themselves have not expressed.”

22.Lord Pearson also referred to a passage in the opinion of Lord Wright in Luxor (Eastbourne) Ltd. V. Cooper [1941] A.C. 108 at 137:

“But it is well recognized that there may be cases where obviously some term must be implied if the intention of the parties is not to be defeated, some term of which it can be predicated that ‘it goes without saying,’ some term not expressed but necessary to give to the transaction such business efficacy as the parties must have intended.  This does not mean that the court can embark on a reconstruction of the agreement on equitable principles, or on a view of what the parties should, in the opinion of the court, reasonably to give effect to the intention of the parties.”

23.The learned Judge then referred at 608 to the judgment of Lord Denning given in that case in the Court of Appeal:

“Lord Denning M.R. also said:

‘There is another approach also available which leads to the same result.  It is by way of an implied term.  The parties, in framing clause 21, did not say what was to happen if phase I was not completed in the contract time.  They must have overlooked it; for otherwise they would surely have provided for it.’

Later, after referring to the above-cited passage of Scrutton L.J. in the Reigate case [1918] 1 K.B. 592, 605, he said:

‘That is no doubt true when the parties may be taken to have contemplated the occurrence and not provided for it-each taking his chance on the meaning to be given by the court to the words.  But when the parties have no thought to the matter and something occurs for which they have not provided, then the court itself will imply a term such as it considers that the parties, as fair and reasonable persons, would have provided if they had thought about it.  In short the court decides according to what is fair and reasonable.’”

24.The learned Judge then said at 609:

“Faced with the conflict of judicial opinion in this case, I prefer the views of Donaldson J. and Cairns L.J. as being more orthodox and in conformity with the basic principle that the court does not make a contract for the parties.  The court will not even improve the contract which the parties have made for themselves, however desirable the improvement might be.  The court’s function is to interpret and apply the contract which the parties have made for themselves.  If the express terms are perfectly clear and free from ambiguity, there is no choice to be made between different possible meanings: the clear terms must be applied even if the court thinks some other terms would have been more suitable.  An unexpressed term can be implied if and only if the court finds that the parties must have intended that term to be part of their contract: it is not enough for the court to find that such a term would have been adopted by the parties as reasonable men if it had been suggested to them: it must have been a term that went without saying, a term necessary to give business efficacy to the contract, a term which, though tacit, formed part of the contract which the parties have made for themselves.”

25.The first point taken by Mr. Yu, S. C. for the plaintiff is that the Agreement was workable without the need to imply the term as sought by the defendant.  It was thus unnecessary to imply the term.  He argued that if the building had to reach 20 storeys but the construction had only reached the 15^th floor by 31 December, 1997, it was obvious to the defendant that the plaintiff had failed to complete the development by that date and she could rescind.  Without the implied term, it was in some circumstances more difficult for the defendant to tell whether she could rescind or not, but that did not make the Agreement unworkable.  It was desirable to have the implied term.  However, the above authorities show that desirability or benefit to one party is insufficient to imply a term. 

26.The defendant argued that without the implied term, it was difficult for her to tell whether the development had been completed in all respects.  If she could not tell with some degree of certainty that the development had not been completed, she could not have rescinded and the Agreement could not work.  Mr. Lee also referred to the plaintiff’s undertaking to the Government and the bond issued by its banker and the fact that they were not registered at the Land Registry.  He thus fortified his submissions that there was no way for the defendant to find out whether the development had been completed. 

27.The defendant also referred to the judgment in Yau Chin Kwan and Yuen Suk Kuen v. Tin Shui Wai Development Ltd. HCA 11520 of 1999 wherein Deputy High Court Judge Longley appeared to have said something in favour of implying their term.  It was a case of the purchasers of another flat in Maywood Court suing the same developer Tin Shui Wai Development Limited for return of the deposit and part payments.  The purchasers there also tried to rely on their rights of rescission under clauses 4(4)(a) and (b) of the sale and purchase agreement which were the same as those in the Agreement.  They also pleaded implied terms.  However, they had not made any enquiry as had been made by the defendant herein, their implied terms were thus not exactly the same as the one sought here.  The terms they sought to imply into their agreement read as follows:

“(1)    to inform the Plaintiffs (purchasers) (a) within a reasonable time after 31 December 1997, or (b) prior to the expiry of 28 days after such date, or (c) prior to or at the time of the notice for the completion of the sale and purchase of the Property:-

(a)   whether the Development had been completed in accordance with Clause 4(1)(c) on or before 31 December 1997; or

(b)   in the event that the Development had not been completed in accordance with Clause 4(1)(c) by 31 December 1997, the fact that it had not been so completed;

(2)     to provide timely information, material or evidence to the Plaintiffs concerning the progress of the Development to enable the Plaintiffs to exercise its rights of rescission as aforesaid; and/or

(3)     to answer the Plaintiffs’ questions or requisitions concerning whether the Development had in fact been completed in accordance with clause 4(1)(c) on or before 31 December 1997.”

28.The third term is materially the same as the one sought here.  Since the purchasers there had not made the enquiries as had been made by this defendant, the establishment of the third term would not have helped them at all, they had to successfully argue for the first and second terms.  For this reason, the developer there did not appear to have really argued against the implication of the third term.  In paragraph 48 of the Judgment, the learned Deputy Judge recorded Mr. Yu (who also appeared in that case for the developer) as having submitted to the effect that:

“48.   ……  Although the defendant as developer would be in the best position to know the state of the development, the Government would also know whether the development had been completed.  A purchaser could always request information from the developer, its solicitor or the Government or indeed, in the absence of such information, serve notice of rescission.  He contends on the authority of Woodar Investment Development Ltd v. Wimpey Construction UK Ltd [1980] 1 WLR 277 that a purchaser who sought to rescind on the mistaken belief that the development was not completed would not be prejudiced thereby.”

29.It was in that context that the learned Deputy Judge said in paragraph 55 of the judgment:

“55.   Insofar as the more limited aspect of the term is concerned, namely to provide information if asked, I find that it is at least arguable that such a term should be implied if the purchaser’s right to rescind is to be meaningful.  The determination of the question may well turn upon evidence of the ability of the purchaser to obtain the information from other sources should the developer refuse to supply it.  I would add that on the arguments I have heard I do not personally find attractive the Defendant’s suggestion that a purchaser should have to purport to rescind in ignorance of the true state of completion of development, even if Mr. Yu’s submission as to the effect of Woodar v. Wimpey are correct.”

30.Mr. Yu has revised the plaintiff’s position in this case.  He strenuously argued that the Agreement could work without implying the term.  I must agree with him that if the construction of the building had not even reached the requisite number of storeys, the defendant would have no difficulty in saying that completion had not taken place and therefore to rescind.  In such circumstances, there was absolutely no need to imply the term and the Agreement could have worked without it.  The imply term would only be useful and desirable when the development was about to be completed.  But if the term need only be implied or take effect when the development was about to be completed, it would be difficult to tell at what time or stage of the construction works that it should be implied or take effect.  It would also be difficult to formulate its content in order to time its application.  This problem of formulation of when the term would bite rendered it incapable of clear expression. 

31.The next attack by Mr. Yu is on the imprecision of the term sought to be implied.  I have already referred to one aspect of imprecision which is the time when the term would apply.  Mr. Yu submitted that there could at least be three ways to formulate the term.  He also added a fourth way at a later stage.  These possible formulations are:

“1.   that the plaintiff is obliged to answer questions raised by the defendant on whether the Development has been completed;

2.    that the plaintiff will answer honestly any question raised by the defendant on whether the Development has been completed;

3.    that the plaintiff will answer correctly or accurately any question raised by the defendant on whether the Development has been completed; and

4.    that the plaintiff will answer with reasonable care any question raised by the defendant on whether the Development has been completed”.

32.I agree that there are at least these alternatives for the formulation of the term sought.  It is tempting to argue that the first formulation is not a real alternative as not any utterance will do.  But if the first formulation cannot be satisfied by any answer, should the answer be an honest one or a correct and accurate one or one that was given with reasonable care?  The second to fourth alternatives give rise to different obligations.  If it cannot be decided whether the first formulation is the same as one of the other three options, then it must be a possible formulation in its own right.  If there are so many possible formulations of the implied term and all creating different obligations, then the conditions in B. P. Refinery (Westernport) Pty Ltd. for implying a term cannot be satisfied and no term should be implied. 

33.Mr. Yu further argued that if the term could be implied, the plaintiff would have to answer any question however informal or general.  However, I am of the view that if the term can be formulated with precision, there would not be difficulty to identify the questions that can come within its scope. 

34.Apart from the problem of imprecision, Mr. Yu also says that the defendant cannot surmount the ‘it goes without saying’ test as referred to in B. P. Refinery (Westernport) Pty Ltd. and Luxor (Eastbourne) Ltd.  I agree with him.  If the implied term cannot be formulated with clarity, I do not think it can pass this other test.  Even if the term can be formulated with clarity, I still do not think the parties would take it as something that ‘goes without saying’.

35.Finally, Mr. Yu argued that the defendant was trying to imply a term that would have permitted her to rescind notwithstanding the absence of any notice to rescind served within 28 days as required by clause 4(4)(b) and that was impermissible as such imply term would be contrary to the express term in clause 4(4)(b).  I do not agree with this point.  The defendant only sought to imply a term requiring the plaintiff to provide answers to her enquiry.  No objection has been taken that such term is contrary to the express term of the Agreement.  The right to rescind as contended for is a right to follow upon a breach of the term, the defendant does not contend that such right was part of the implied term.   

36.In the premises, I find that the implied term as contended for by the defendant cannot be implied into the Agreement.

Prevention principle

37.The defendant then argued that if there was the implied term, the defendant would have been able to rely on the Prevention Principle.  The application of the Prevention Principle would prevent the plaintiff from benefiting from its own wrong, that was by giving incorrect information to the defendant to cause her not to exercise her right of recession, thereby keeping the Agreement alive with consequences dire to the defendant but advantageous to the plaintiff.

38.Alternatively, the defendant says that, even without the implied term, the Prevention Principle would still apply by reason of the incorrect answers given by the plaintiff and its agent the third party.

39.The Prevention Principle has been explained by Ribeiro, PJ. of the Court of Final Appeal in Kensland Realty Ltd. v. Whale View Investment Ltd. & Another [2002] 1 HKLRD 87.  This was a case involving the sale and purchase of a property.  Completion was scheduled to take place between 10 a.m. to 1 p.m. on 2 September 1997.  The agreement provided that time was of the essence.  It also gave the vendor the power to give a split cheque direction, that was to direct in whose favour the balance of the purchase price was to be paid, but did not lay down a deadline for the such direction.  Despite earlier requests for such direction by the solicitor of the purchaser, the direction was only given at 11:13 a.m. with a correction at 11:48 a.m. on 2 September.  The direction was passed to the purchaser's bank which processed the drawing down of the loan and issued the cashier orders at 12:48 p.m.  The cashier orders were only delivered to the vendor’s solicitors and 1:06 p.m.  The vendor refused to accept the cashier orders as the deadline had already passed.  The Court of Final Appeal decided that business efficacy demanded that there be an implied term that the split cheque direction should be given so as to allow the purchases solicitor reasonable time to comply with it prior to completion.  In breach of the implied term, the time allowed by the vendor was not reasonable and the purchaser’s inability to tender completion by 1 p.m. was caused by the vendor’s breach.  The vendor’s breach of the implied term was the direct cause of the purchaser’s failure to meet the deadline.  Therefore, in seeking to invoke the time of the essence clause, the vendor was seeking to take advantage of a consequence flowing from its own breach.  The Prevention Principle operated to prevent reliance on that clause.  It followed that, by virtue of section 11 of the Law Amendment and Reform (Consolidation) Ordinance, the equitable rules on time stipulations applied.  Under these rules, the purchaser’s failure to meet the completion deadline was not repudiatory in itself, provided that the purchaser completed or showed its willingness to complete within a reasonable time thereafter. 

40.Ribeiro, PJ. said in paragraphs 94 to 100 as follows:

“(iii)     The need for a relevant breach

94.     In refining the principle’s operation in the contractual context, the authorities have stressed two limitations.  First, it is necessary to show the relevant party’s “wrong” involves his breach of the contract in respect of an obligation owed to the other party.

(a)   Thus, in Luxor (Eastbourne) Ltd v. Cooper [1941] AC 108, the House of Lords held that where an estate agent was engaged on terms that he would be paid commission if he brought about a sale, no implied term existed inhibiting the principals from disposing of their property themselves or through other channels, thereby preventing the agent from earning commission.

(b)   The point, as Lord Wright stressed, was that the owners were quite entitled to dispose of their property and, in doing so other than through the agent, breached no obligation owed to the agent ……

(c)   This requirement was also emphasised by Lord Diplock in Cheall v. Association of Professional Executive Clerical and Computer Staff [1983] 2 AC 180, 189, contrasting duties owed to the other party to the contract with duties owed to third persons: -

“To attract the principle, whether it be one of construction or one of law, that a party to a contract is not permitted to take advantage of his own breach of duty, the duty must be one that is owed to the other party under that contract; breach of a duty whether contractual or non-contractual owed to a stranger to the contract does not suffice.” ……

(v)   How the principle is given effect

96.  On the basis of the foregoing discussion, it seems clear, based on the underlying principle that a person is not permitted to take advantage of his own wrong, that a contractual party who is in breach of an obligation owed to the other party, will be prevented from asserting rights or claiming benefits which arise in consequence of his breach. ……

(iv)  Giving the principle effect in the present case

100.   In deciding how the prevention principle is to be given effect in any particular case, it is necessary to identify with some precision, the relevant breach, the factual consequences flowing from such breach and what, if any, advantage the contract-breaker seeks to take on the basis of such consequences.  The principle aims specifically to deny the contract-breaker those particular advantages.”

41.To invoke the Prevention Principle, there must be a breach of a term of the contract.  Since I have held that there can be no implied term as contented by the defendant and the defendant has not alleged that there is a breach of any other term by the plaintiff which would have invoked this principle, there is no room for this principle to operate.  I also disagree that this principle can operate independently of any breach of any term of a contract. 

42.In any event, when the defendant received the notice to complete in early July, 1998, she should have full knowledge by then that the development was only completed in late June, 1998.  If she wanted to seek any remedy that might have flowed from the failure to complete, she should have done so within a reasonable time after her receipt of the notice.  She was given three months from 30 June, 1998 to complete.  She did not complete, nor did she complain about the incorrect information she was given in late December, 1997 or early January, 1998.  She just allowed the time to pass.  I do not think the Prevention Principle can come to her aid in these circumstances.  

Misrepresentation

43.The defendant further argued that her evidence of misrepresentation relating to her inquiries with the staff of the plaintiff and of the third party as referred to above would support a plea of misrepresentation independently of the plea of breach of implied term and/or the Prevention Principle.  On this basis, the defendant said that she would be entitled to a set off and counterclaim for damages.  However, she did not rely on fraud or section 2 of the Misrepresentation Ordinance, nor did she allege any duty of the plaintiff to advise her or any duty of care on the part of the plaintiff when dealing with her.  I therefore cannot perceive any cause of action that can arise from the alleged misrepresentation.

Notice to complete

44.Finally, the defendant attacked the notice to complete dated 30 June 1998.  She firstly argued that under clause 4(6), the plaintiff should only apply for the consent to assign when it had completed the development in all respects in compliance with the Grant.  If the development had not been so completed, the plaintiff was not in a position to apply for the consent.  Since the plaintiff had not completed the development on 23 December 1997, the application for consent to assign under clause 4 (6) was invalid.  Since clause 4(7) was not intended to benefit a developer in breach of its obligations to complete, the plaintiff could not have relied on the consent to assign so as to take the benefit of clause 4(7).  Thus when the third party issued the notice to complete on 30 June 1998, the development was not completed or deemed to be completed and the notice was bad pursuant to clause 5(1).

45.The defendant’s second argument on the notice to complete was that the deeming effect in clause 4(7) was limited to clause 4 and was irrelevant to clause 5.  Therefore the plaintiff would only be “in a position validly to assign” the Property to the defendant pursuant to clause 5 if the development had actually been completed.  Since when the notice to complete was issued, the development had in fact not been completed and the deemed completion under clause 4(7) did not extend to clause 5, the plaintiff was then not “in a position validly to assign” the Property to the defendant.  The notice to complete was thus bad.

46.The effect of this argument is that if the notice to complete was bad, the defendant was not in default of the Agreement when she failed to complete as per the notice.  It then followed that the plaintiff's determination of the Agreement on 3 November 1998 was a repudiation of the Agreement.  As the plaintiff had sold the Property after repudiating it, the defendant was entitled to get back her deposit.

47.In order to analyse this argument, I have to refer to paragraph 65 of the judgment of Deputy Judge Longley in Yau Chin Kwan as follows:

“65.   The parties to the Agreement must have contemplated that the Consent to Assign to which they were referring was capable of being granted in circumstances when the Defendant had not satisfied the Director of Lands that all the conditions of the grant had been complied with and that the Consent to Assign might be granted upon such terms and conditions as the Director of Lands saw fit.  Indeed the fact that a Consent to Assign was issued rather than a Certificate of Compliance would inevitably suggest that the Conditions of Grant had not been fully complied with.  That is exactly what the Deputy Director of Lands said in his letter of 16 April 1999 to the Plaintiffs’ solicitors:

“It is apparent from the fact that a Consent to Assign was issued instead of a Certificate of Compliance that certain conditions had at the time not yet been complied with.  Notwithstanding the outstanding works the fact is that a Consent to Assign has been issued and the vendor was entitled to give notice to complete the sale and purchase without the need for the issue of a full certificate of compliance.”

48.I fully agree with Deputy Judge Longley and do not think that the application for consent to assign could only be made when the development had been completed or that the consent could only be issued by the Director after he had been satisfied that the development had been completed.  The requirement in clause 4(6) of the Agreement that the plaintiff should apply for the consent to assign within 14 days of the completion of the development only imposed a deadline for the making of the application, it did not mean that the application could not have been made before the development had been completed.

49.Regarding clause 5, it required the plaintiff to notify the defendant within one month of the issue of the consent to assign that the plaintiff was in a position validly to assign the Property to the defendant.  If there was the consent to assign, the Property could be assigned to the defendant.  Otherwise, the mechanism for the issue of the consent or the consent itself would not make sense.  The protection to the defendant lies in the need for the plaintiff to obtain the consent to assign from the Director of Lands.  I do not think the notice to complete was bad for the reasons advanced by the defendant. 

50.In the premises, I should strike out the Defence and Counterclaim of the defendant and I so order.  I further give judgment for the plaintiff for damages to be assessed.  I also make an order nisi that the defendant should pay the plaintiff costs of this action with certificate for leading counsel. 

Present  :   Benjamin Yu, S. C., instructed by M/s Hobson & Ma for the plaintiff

Martin Lee, S. C. and Earnest W. H. Cheung, instructed by M/s Ho & Tam for the Defendant.